EXHIBIT 10.8
PAYLESS SHOESOURCE, INC. 401(k)
PROFIT SHARING PLAN
As Amended Effective November 10, 2005, or as otherwise specified
TABLE OF CONTENTS
PAGE
SECTION 1 - Definitions.....................................................................2
1.01 Accounts.......................................................................2
1.02 Administrative Delegate........................................................2
1.03 After-Tax Contributions........................................................2
1.04 Allocation Pay Amount..........................................................2
1.05 Associate......................................................................2
1.06 Authorized Leave of Absence....................................................3
1.07 Before-Tax Contributions.......................................................3
1.08 Beneficiary....................................................................3
1.09 Board..........................................................................3
1.10 Code...........................................................................3
1.11 Committee......................................................................3
1.12 Company........................................................................3
1.13 Company Accounts...............................................................3
1.14 Company Matching Contributions.................................................3
1.15 Company Profit Sharing Contributions...........................................3
1.16 Effective Date.................................................................3
1.17 Employer.......................................................................3
1.18 ERISA..........................................................................4
1.19 Fiduciary......................................................................4
1.20 Fiscal Year....................................................................4
1.21 Group..........................................................................4
1.22 Hour of Service................................................................4
1.23 Investment Fund................................................................4
1.24 May Plan.......................................................................4
1.25 Member.........................................................................4
1.26 Member Accounts................................................................5
1.27 Member After-Tax Accounts......................................................5
1.28 Member Before-Tax Accounts.....................................................5
1.29 Member Contributions...........................................................5
1.30 Member Rollover Contribution Accounts..........................................5
1.31 Military Service...............................................................5
1.32 Net Profits....................................................................5
1.33 Pay............................................................................5
1.34 Pooled Investment Account......................................................6
1.35 Plan...........................................................................6
1.36 Plan Year......................................................................6
1.37 Prior Plan.....................................................................6
1.38 Qualified Domestic Relations Order.............................................6
1.39 Retirement.....................................................................6
1.40 Rollover Contributions.........................................................6
1.41 Social Security Wage Base......................................................6
1.42 Total and Permanent Disability or Disability...................................6
1.43 Transferred Accounts...........................................................6
1.44 Trust Agreement................................................................6
1.45 Trust Fund.....................................................................6
1.46 Trustee........................................................................7
1.47 Unit...........................................................................7
1.48 Unit Value.....................................................................7
1.49 Valuation Date.................................................................7
1.50 Year of Service................................................................7
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1.51 Vesting Service................................................................7
SECTION 2 - Membership......................................................................9
2.01 Conditions of Eligibility......................................................9
2.02 Re-Employment.................................................................10
SECTION 3 - Company Contributions..........................................................11
3.01 Amount of Company Profit Sharing Contribution.................................11
3.02 Amount of Company Matching Contribution.......................................11
3.03 Allocation of Company Contributions...........................................11
3.04 Profit Sharing Allocation Formula.............................................11
3.05 Investment of the Company Contribution........................................12
3.06 Return of Company Contributions...............................................12
SECTION 4 - Member Contributions...........................................................13
4.01 Procedure for Making Contributions............................................13
4.02 Limitations On And Distributions On Before-Tax Contributions For Highly
Compensated Employees.........................................................15
4.03 Distributions of Excess Deferrals.............................................17
4.04 Limitations On And Distributions Of After-Tax Employee Contributions And
Matching Contributions For Highly Compensated Employees.......................17
4.05 Limitations On Multiple Use of Alternative Limitation.........................18
SECTION 5 - Investment Provisions..........................................................20
5.01 Investment Funds..............................................................20
5.02 Investment Direction..........................................................20
SECTION 6 - Accounts.......................................................................22
6.01 Member Accounts...............................................................22
6.02 Company Accounts..............................................................22
6.03 Maintenance of Accounts.......................................................22
6.04 Valuation of Accounts.........................................................22
6.05 Member Statements.............................................................22
6.06 Shares of Payless ShoeSource, Inc. in the Payless Common Stock Fund..........22
6.07 Vesting in Member and Company Accounts........................................23
SECTION 7 - Expenses.......................................................................27
7.01 Administrative Expenses.......................................................27
SECTION 8 - Withdrawals During Employment..................................................28
8.01 Withdrawals Prohibited Unless Specifically Authorized.........................28
8.02 Authorized Withdrawals........................................................28
SECTION 9 - Benefits Upon Retirement, Death, Disability or Termination of Employmen........31
9.01 Benefits......................................................................31
9.02 Beneficiary...................................................................31
SECTION 10 - Payment of Benefits...........................................................32
10.01 Time of Payment..............................................................32
10.02 Form of Payment..............................................................33
10.03 Indirect Payment of Benefits.................................................33
10.04 Inability to Find Member.....................................................33
10.05 Commencement of Benefit Distribution to Members..............................32
10.06 Commencement of Benefit Distribution to Beneficiary..........................37
10.07 Commencement of Benefit Distribution to Alternate Payee......................37
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SECTION 11 - Permitted Rollover of Plan Distributions......................................38
11.01 Rollover to Other Plans......................................................38
11.02 Rollover from Other Plans....................................................38
11.03 Definitions..................................................................39
SECTION 12 - Loans.........................................................................41
12.01 Availability of Loans.......................................................41
12.02 Amount of Loans.............................................................41
12.03 Terms of Loans..............................................................41
SECTION 13 - Limit on Contributions to the Plan............................................43
13.01 Limit on Contributions.......................................................43
13.02 Adjustment for Excessive Annual Additions....................................43
SECTION 14 - Administration of the Plan....................................................45
14.01 Plan Administrator...........................................................45
14.02 Delegation of Authority......................................................45
14.03 Committee and Subcommittees..................................................45
14.04 Accounts and Reports.........................................................46
14.05 Non-Discrimination...........................................................47
SECTION 15 - Management of the Trust Fund..................................................48
15.01 Use of the Trust Fund........................................................48
15.02 Trustees.....................................................................48
15.03 Investments and Reinvestments................................................48
SECTION 16 - Certain Rights and Obligations of Employers and Members.......................50
16.01 Disclaimer of Employer Liability.............................................50
16.02 Employer-Associate Relationship..............................................50
16.03 Binding Effect...............................................................50
16.04 Corporate Action.............................................................50
16.05 Claim and Appeal Procedure...................................................50
SECTION 17 - Non-Alienation of Benefits....................................................52
17.01 Provisions with Respect to Assignment and Levy...............................52
17.02 Alternate Application........................................................52
SECTION 18 - Amendments....................................................................53
18.01 Company's Rights.............................................................53
18.02 Procedure to Amend...........................................................53
18.03 Provision Against Diversion..................................................53
SECTION 19 - Termination...................................................................54
19.01 Right to Terminate...........................................................54
19.02 Withdrawal of an Employer....................................................54
19.03 Distribution in Event of Termination of Trust................................54
19.04 Administration in Event of Continuance of Trust..............................54
19.05 Merger, Consolidation or Transfer............................................54
SECTION 20 - Construction..................................................................55
20.01 Applicable Law...............................................................55
20.02 Gender and Number............................................................55
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SECTION 21 - Top-Heavy Requirements........................................................56
21.01 Generally..........................................................56
21.02 Minimum Allocations................................................56
21.03 Participants Under Defined Benefit Plans...........................56
21.04 Determination of Top Heaviness.....................................56
21.05 Calculation of Top-Heavy Ratios....................................57
21.06 Cumulative Accounts and Cumulative Accrued Benefits................57
21.07 Other Definitions..................................................58
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PAYLESS SHOESOURCE, INC.
401(k) PROFIT SHARING PLAN
INTRODUCTION
Effective April 1, 1996, Payless ShoeSource, Inc. withdrew from and ceased
to be a participating Employer in The May Department Stores Company Profit
Sharing Plan (the "May Plan"), and established the Payless ShoeSource, Inc.
Profit Sharing Plan (the "Plan"). Effective January 1, 1997, a portion of the
Plan covering Associates of Payless ShoeSource of Puerto Rico, Inc. was spun
off. As of August 1, 1997, Payless amended and restated the Plan, primarily to
establish a company matching contribution based on Members' contributions
effective January 1, 1998, to institute automatic enrollment in before-tax
contributions by Members, and to comply with certain changes in the law. On June
1, 1998, Payless restructured its corporate organization into a holding company
structure with Payless ShoeSource, Inc., a Delaware corporation, as the parent
corporation and the named Company for this Plan. Effective March 20, 2000, the
Company amended and restated the Plan, primarily to include provisions for loans
and the acceptance of rollover contributions from other qualified plans, a
change to daily valuation and other miscellaneous changes.
Effective January 1, 2002, the Company amended and restated the Plan to
effect the adoption of mandatory and certain permissive provisions of the
Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). The EGTRRA
amendments to the Plan are intended to be made in good faith compliance with the
requirements of EGTRRA and are to be construed in accordance with EGTRRA and
guidance issued thereunder. While the EGTRRA amendments are generally effective
January 1, 2002, some of the amendments are effective May 1, 2002, as indicated
below. In addition, effective May 1, 2002, the Plan was amended to permit Full
Time Associates to participate in the Plan upon the completion of 90 days of
employment service with a participating Employer or other member of the Group.
Effective January 1, 2003 the Company again amended and restated the Plan to
reflect the terms of the final Treasury Regulations governing required minimum
distributions. Effective March 28, 2005, the Company amended the Plan to reduce
the limit for certain mandatory distributions as described in IRS notice 2005-5.
Other amendments made herein are effective on the dates as specified. The Plan
was further amended November 10, 2005 to provide for a guaranteed minimum
Company Matching Contribution effective beginning with the 2005 Plan Year.
Additional amendments were made effective January 1, 2006 to permit Full-Time
Associates to make elective contributions to the Plan after completing 60 days
of employment and to be eligible to receive the Company Matching Contribution
after completing 180 days of employment. The hardship provisions of the Plan
were also amended to expand the definition of a "hardship", consistent with
Treasury regulations.
The terms and provisions of this new plan are as follows:
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SECTION 1
DEFINITIONS
1.01 ACCOUNTS means the Company Accounts and Member Accounts established
under Section 6.
1.02 ADMINISTRATIVE DELEGATE means one or more persons or institutions to
which the Committee has delegated certain administrative functions pursuant to a
written agreement.
1.03 AFTER-TAX CONTRIBUTIONs means Member Contributions which are not
Before-Tax Contributions and which are made by the Member in accordance with
Section 4.01(a).
1.04 ALLOCATION PAY AMOUNT means with respect to each eligible Member, (a)
one (1) times the amount of Pay as defined in Section 1.33 up to the Social
Security Wage Base ("SSWB") for the Plan Year, plus (b) two (2) times the amount
of such Pay in excess of the SSWB for the Plan Year. Notwithstanding any
provision of this Section 1.04 or of Section 3.03 to the contrary, in no event
shall the percentage of Members' Pay to be allocated for any year below the SSWB
be less than fifty percent (50%) of the percentage of Pay allocated with respect
to Members' Pay in excess of the SSWB, nor may the latter percentage of Pay
(above the SSWB) exceed the former percentage of Pay (below the SSWB) by more
than 5.7% (or such other percentage as may be the maximum permitted differential
under Code Section 401(1) from time to time).
In determining each eligible Member's Allocation Pay Amount, only Pay
received during the part of the Plan Year the Member is eligible for the Company
Contribution feature of the Plan, pursuant to Section 2, shall be considered,
and the SSWB to be applied for such Member shall be proportionally prorated if
such eligibility is for less than a full Plan Year.
Notwithstanding the foregoing, with respect to any Plan Year for which
applying the definition of Allocation Pay Amount set forth above would cause the
allocation made pursuant to Section 3.03 to violate the permitted disparity
limitations of Treas. Reg. Section 1.401(l)-2, Allocation Pay Amount shall be
adjusted to permit Section 3.03 to operate in compliance with the limitations of
Treas. Reg. Section 1.401(l)-2.
1.05 ASSOCIATE means any person who is classified as an employee by an
Employer and who receives Pay from an Employer. The term Associate also may
include, based upon the express written determination of the Company or the
Committee, a U.S. citizen employed, at the request of the Company, by a member
of the Group (defined in Section 1.21) to the extent such employee otherwise
qualifies for membership under Section 2, in which case such Group member shall
be deemed to be an "Employer" hereunder, as to such person or persons only. The
term "Associate" shall not include (i) any person covered under a collective
bargaining agreement unless and until the Employer and the collective bargaining
representatives so agree, (ii) any non-resident alien, and (iii) any "leased
employee" within the meaning of Code Section 414(n)(2).
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1.06 AUTHORIZED LEAVE OF ABSENCE means any leave of absence authorized by
the Employer under rules established by the Employer.
1.07 BEFORE-TAX CONTRIBUTIONS means contributions which the Member elects
(in accordance with Section 4.01(b)) to have the Employer make directly to the
Plan on behalf of the Member, which election shall constitute an election under
Code Section 401(k)(2)(A). The "Member's Before-Tax Contributions" shall refer
to Before-Tax Contributions made to the Plan by the Employer on behalf of the
Member.
1.08 BENEFICIARY means the person or persons entitled under Section 9.02
to receive any payments payable under this Plan on account of a Member's death.
1.09 BOARD means the Board of Directors of the Company.
1.10 CODE means the Internal Revenue Code of 1986, as amended from time to
time.
1.11 COMMITTEE means the Profit Sharing Committee comprised of three or
more members as determined and appointed from time to time by the Board.
1.12 COMPANY means Payless ShoeSource, Inc., a Delaware corporation, and
any other organization which may be a successor to it.
1.13 COMPANY ACCOUNTS means accounts reflecting the portion of each
Member's interest in the Investment Funds which are attributable to Company
Matching Contributions ("Company Matching Accounts") and to Company Profit
Sharing Contributions ("Company Profit Sharing Accounts") and to any
contributions made by an Employer under prior plans, as well as to any income
and/or earnings attributable to such Company Contributions and prior plan
contributions.
1.14 COMPANY MATCHING CONTRIBUTIONS means contributions made by the
Company or an Employer, based on a Member's Before-Tax and/or After-Tax
Contributions, pursuant to Section 3.02.
1.15 COMPANY PROFIT SHARING CONTRIBUTIONS means discretionary
contributions made by the Company or an Employer, based on Net Profits, pursuant
to Section 3.03.
1.16 EFFECTIVE DATE originally meant April 1, 1996. However, the effective
date of this amendment and restatement of the Plan shall be March 20, 2000,
unless otherwise specified herein.
1.17 EMPLOYER means the Company and, if authorized by the Company to
participate herein, any subsidiary of the Company or any affiliated corporation,
partnership or sole proprietorship which elects to participate herein.
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1.18 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.19 FIDUCIARY means the Employer, the Trustee, each of the members of the
Committee described in Section 14, and any investment manager designated
pursuant to Section 15.
1.20 FISCAL YEAR means the Company's Fiscal Year.
1.21 GROUP means the Company and any other company which is related to the
Company as a member of a controlled group of corporations in accordance with
Code Section 414(b), as a trade or business under common control in accordance
with Code Section 414(c) or as an affiliated service group in accordance with
Code Section 414(m) or the regulations under Code Section 414(o). For the
purposes of the Plan, for determining whether or not a person is an employee of
the Group and the period of employment of such person, each such other company
shall be included in the "Group" only for such period or periods during which
such other company is a member with the Company of a controlled group or under
common control.
1.22 HOUR OF SERVICE means any hour for which an Associate (including a
leased employee) is directly or indirectly compensated, or entitled to
compensation, by the Employer or by any member of the Group, whether or not such
Group member has adopted the Plan, for any of the following:
(a) the performance of duties during the applicable computation period;
(b) a period during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, Military
Service, or Authorized Leave of Absence;
(c) a period for which back pay is awarded or agreed to, provided that no
Hour of Service has been credited under subsection (a) or (b) with respect
to the same period.
Hours of Service and applicable computation periods shall be determined in
accordance with the requirements of 29 C.F.R. Section 2530.200b.
1.23 INVESTMENT FUND means any fund for investment of contributions as
described in Section 5.01.
1.24 MAY PLAN means The May Department Stores Company Profit Sharing Plan.
1.25 MEMBER means any person included in the membership of this Plan as
provided in Section 2.
4
1.26 MEMBER ACCOUNTS means the Member Before-Tax Accounts, the Member
After-Tax Accounts and the Member Rollover Contribution Accounts. To the extent
an Associate makes a Rollover Contribution pursuant to Section 11.02 and the
Associate is otherwise eligible but has not yet completed the participation
requirements of Section 2.01, such contribution shall also be a Member Account.
1.27 MEMBER AFTER-TAX ACCOUNTS means the Member Accounts with respect to a
Member's After-Tax Contributions.
1.28 MEMBER BEFORE-TAX ACCOUNTS means the Member Accounts with respect to
a Member's Before-Tax Contributions.
1.29 MEMBER CONTRIBUTIONS means the Member's Before-Tax Contributions and
After-Tax Contributions.
1.30 MEMBER ROLLOVER CONTRIBUTION ACCOUNTS means the Member Accounts with
respect to an Associate's or Member's Rollover Contributions.
1.31 MILITARY SERVICE means effective December 13, 1996, any period of
obligatory military service with the Armed Forces of the United States of
America, or voluntary service in lieu of such obligatory service, provided that
the Associate returns to active employment with the Employer within the period
during which the Employer would be required to re-employ the Associate under
Federal law. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits, loan repayment and service credit with respect to
qualified Military Service will be provided in accordance with Code Section
414(u).
1.32 NET PROFITS means the consolidated net profits of the Company for any
given Fiscal Year, determined by generally accepted accounting principles except
that (i) no deduction or provision shall be made for any federal, state or other
taxes measured by net income, nor for any contributions to the Trust or to any
other pension or profit sharing plan, and (ii) there shall be excluded any
proceeds from life insurance of which the Company is beneficiary (whether paid
in a single sum or otherwise) and any gains or losses on the sale of capital
assets. Such term shall also mean any accumulated and undistributed Net Profits
(as defined in the preceding sentence) earned in prior Fiscal Years to the
extent that such accumulated and undistributed Net Profits constitute surplus of
the Company and its subsidiaries available for contributions hereunder.
1.33 PAY means the aggregate of (i) all regular pay, commissions, overtime
pay, cash incentives, prizes and cash awards, plus (ii) amounts which the
Associate elects to have the Employer contribute directly to the Plan on the
Associate's behalf in accordance with Section 4.01(b). Pay shall include any
amounts not otherwise includable in the Member's taxable income pursuant to Code
Section 125. Pay shall not include amounts for a pension, a retirement
allowance, a retainer or a fee under contract, deferred compensation (including
amounts deferred under the Deferred Compensation Plan of The May Department
Stores Company and the Deferred Compensation Plan of Payless ShoeSource, Inc.),
severance pay, distributions from this Plan,
5
amounts earned before an individual becomes a Member, or items of extraordinary
income including but not limited to amounts resulting from the exercise of stock
options, spinoff cash, spinoff stock and restricted stock awards. Pay in excess
of $200,000 shall be disregarded, although such amount shall be adjusted at the
same time and in such manner as permitted under Code Section 415(d).
1.34 POOLED INVESTMENT ACCOUNT means an account established pursuant to an
administrative services agreement between the Company and the Trustee.
1.35 PLAN means this Payless ShoeSource Inc. 401(k) Profit Sharing Plan.
1.36 PLAN YEAR means a calendar year ending each December 31.
1.37 PRIOR PLAN means either The May Department Stores Company Profit
Sharing Plan, the Volume Shoe Corporation Profit Sharing Plan, or such other
qualified plan as may be so designated by the Committee.
1.38 QUALIFIED DOMESTIC RELATIONS ORDER means a "qualified domestic
relations order" as that term is defined in Code Section 414(p), provided that
such order was entered on or after January 1, 1985.
1.39 RETIREMENT means a Member's termination of employment on or after age
55 and after completing at least five (5) Years of Service or attaining the
fifth anniversary of participation, as of which date the Member's benefit shall
be nonforfeitable.
1.40 ROLLOVER CONTRIBUTIONS means contributions which the Associate or
Member, as applicable, elects to make in accordance with Section 11.02.
1.41 SOCIAL SECURITY WAGE BASE means, with respect to each Plan Year, the
maximum amount of wages which are subject to tax in such year under the Federal
Old Age, Survivors and Disability Insurance System.
1.42 TOTAL AND PERMANENT DISABILITY OR DISABILITY means the qualification
for disability under Title 11 of the Federal Social Security Act.
1.43 TRANSFERRED ACCOUNTS means Member and Company Accounts transferred
from the May Plan.
1.44 TRUST AGREEMENT means the agreement or agreements provided for in
Section 14, as amended from time to time.
1.45 TRUST FUND means all the assets of the Investment Funds and any other
assets which are held in one or more trusts by the Trustee or Trustees for the
purposes of this Plan.
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1.46 TRUSTEE means the corporation(s), person or persons which may at any
time be acting as Trustee or Trustees under the Trust Agreement.
1.47 UNIT means one of the units representing an interest in an Investment
Fund as provided in Section 6.03.
1.48 UNIT VALUE means the value of each Unit in an Investment Fund as of
the Valuation Date as determined pursuant to Section 6.04.
1.49 VALUATION DATE means any day that the New York Stock Exchange is open
for business or any other date chosen by the Committee. Prior to March 31, 2000,
Valuation Date means the last business day of each calendar month and any other
date chosen to perform a valuation.
1.50 YEAR OF SERVICE for purposes of determining eligibility under Section
2 means a year of employment during which the Associate has been paid for not
less than 1,000 Hours of Service for an Employer or any other member of the
Group. An Associate shall be credited with a year of employment on each
anniversary date of his commencement of employment with an Employer during which
he earns not less than 1,000 Hours of Service for an Employer or any other
member of the Group. Periods of temporary illness, temporary layoff, Military
Service, and Authorized Leaves of Absence shall not be deemed as breaking
continuity of employment and shall be counted in determining Years of Service.
The term "Year of Service" shall also include an employment year during which,
except to the extent otherwise provided in Treasury Regulations, a "leased
employee" within the meaning of Code Section 414(n) has been paid for not less
than 1,000 Hours of Service for the Employer even though during such period the
leased employee was not an Associate as defined in Section 1.05. The term "Year
of Service" shall include any period required to be included by the Family and
Medical Leave Act of 1993.
The extent to which service with another organization, part or all of
whose business operations are acquired by the Company (or by an Employer), shall
be credited as "Years of Service" hereunder or as "Vesting Service" under
Section 1.51 shall be determined by the Company or by the Committee on a
case-by-case basis.
1.51 VESTING SERVICE for purposes of determining a Member's vested
interest under Section 6.07 is based on "elapsed time" and is to be determined
in accordance with the following definitions:
(a) "EMPLOYMENT COMMENCEMENT DATE" means the date upon which an Associate
first performs an Hour of Service.
(b) "HOUR OF SERVICE" means an hour for which an Associate is paid or
entitled to payment for the performance of duties for the Employer or any
other member of the Group.
7
(c) "PERIOD OF SERVICE" means a period beginning on the Associate's
Employment Commencement Date (or Reemployment Commencement Date, as the
case may be) and ending on his Severance from Service Date.
(d) "SEVERANCE FROM SERVICE DATE" means the earlier to occur of:
(i) the last date upon which an Associate terminates employment with
the Employer or any other member of the Group (either voluntarily or
involuntarily), retires or dies; or
(ii) the first anniversary of the date upon which the Associate was
first absent from service with the Employer (with or without pay)
for any other reason (i.e., vacation, sickness, disability, leave of
absence or layoff).
Notwithstanding the foregoing, the Severance from Service Date of an
Associate who is absent from service with the Employer beyond the first
anniversary of the first day of such absence on account of maternity or
paternity (as described in Code Sections 410(a)(5)(E) or 411(a)(6)(E)) shall be
the second anniversary of the first day of such absence; and the period of time
between such first and second anniversaries shall not be treated as a Period of
Service or as a Period of Severance.
(e) "PERIOD OF SEVERANCE" means a period beginning on an Associate's
Severance from Service Date and ending upon the Associate's Reemployment
Commencement Date.
(f) "REEMPLOYMENT COMMENCEMENT DATE" means the first date, following a
Severance from Service Date, upon which the Associate performs an Hour of
Service for the Employer or any other member of the Group.
(g) "SERVICE SPANNING RULES." In determining whether or not an Associate
has completed a twelve month Period of Service for purposes of vesting,
the following Periods of Severance shall be treated as Periods of Service:
(i) If an Associate terminates employment with the Employer (either
voluntarily or involuntarily) or retires, and then performs an Hour
of Service within the twelve month period beginning on the Severance
from Service Date, such Period of Severance shall be treated as a
Period of Service; and
(ii) If an Associate terminates employment with the Employer (either
voluntarily or involuntarily) or retires during an absence from
service of twelve months or less for any reason other than a
termination or retirement, and then performs an Hour of Service
within a period of twelve months from the date the Employee was
first absent from service, the Period of Severance shall be treated
as a Period of Service.
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SECTION 2
MEMBERSHIP
2.01 CONDITIONS OF ELIGIBILITY.
(a) Each Associate who on April 30, 2002 was a Member of or is eligible to
be a Member of the Plan shall continue to be a Member of this Plan
entitled to make Member Contributions pursuant to Section 4 and eligible
to share in Company Contributions pursuant to Section 3.
(b) Each other Associate shall be eligible to become a Member of the Plan
when the Associate has completed one Year of Service and attained age 21,
with membership to commence as of the first day of the month coincident
with or following the date he has met these eligibility requirements. Such
Associate shall be eligible:
(i) to make Member Contributions pursuant to Section 4;
(ii) to share in Company Matching Contributions pursuant to Section
3.02;
(iii) to share in Company Profit Sharing Contributions, if any,
pursuant to Section 3.01.
Notwithstanding the foregoing, effective January 1 2006, a Full Time
Associate shall be eligible to make Member Contributions pursuant to
Section 4 as of the first day of the month coincident with or following
the date he has completed 60 days of employment with the Employer and
attained age 21. Further, a Full-Time Associate shall be eligible to
receive a Company Matching Contribution coincident with or following the
date he has completed 180 days of service with the Company and satisfied
the requirements of Section 3.03. For the purposes of the preceding
sentence, a "Full Time Associate" is an Associate classified on the
Employer's records as a Full Time Associate. In many locations, this means
the Associate is normally scheduled to work 32 or more hours per week.
However, the Associate's classification on the Employer's records, and not
the actual number of hours worked in any period, determines Full Time
status.
(c) Each Member shall be deemed to have elected to make a three percent
(3%) Before-Tax Contribution pursuant to Section 4.01(b), commencing with
the first paycheck issued with respect to the first payroll period
beginning on or after the first day of the month coincident with or
following the date the Employer determines he met the foregoing
eligibility requirements. Notwithstanding this "deemed" election, an
Associate or Member may elect pursuant to procedures established by the
Committee to not make, or to suspend making, said three percent (3%)
automatic Before-Tax Contribution, or pursuant to Section 4.01(a) or (b)
to make an After-Tax or a Before-Tax Contribution of an amount other than
three percent (3%).
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(d) Associates employed by the Company's Puerto Rican Subsidiaries are
not eligible for membership hereunder. If any such Associate has
Accounts in this Plan, such Accounts shall continue to be revalued
as of each succeeding Valuation Date pursuant to Section 6.04.
2.02 RE-EMPLOYMENT. A former Member who has retired or has otherwise
terminated employment and is rehired shall become a Member on the first day of
the calendar month after the Employer becomes aware of his rehire.
10
SECTION 3
COMPANY CONTRIBUTIONS
3.01 AMOUNT OF COMPANY PROFIT SHARING CONTRIBUTION. The Company or an
Employer may contribute to the Trust, as of the end of each Plan Year, a
percentage of the Company's Net Profits as a Company Profit Sharing
Contribution. The amount of such contribution, if any, shall be determined by
the Board of Directors in its discretion. Any such contribution shall be made as
soon as practicable after the close of the Company's Fiscal Year. All such
contributions advanced to the Plan by the Company shall be reimbursed to the
Company by the Employer.
3.02 AMOUNT OF COMPANY MATCHING CONTRIBUTION. The Company shall, in its
discretion, contribute to the Trust, as of the end of each Plan Year, a total
combined amount as to this Plan and the Payless ShoeSource, Inc. Profit Sharing
Plan for Puerto Rico Associates ("Puerto Rico Plan") equal to 2 1/2% of its Net
Profits, until determined otherwise by the Board of Directors, in the form of a
Company Matching Contribution. Effective beginning with the 2005 Plan Year, the
Board has determined that a minimum guaranteed Company Matching Contribution of
$.20 per $1.00 of Member Contributions up to 5% of Pay will be contributed each
Plan Year by the Company. Such Company Matching Contributions may be made by an
Employer, rather than by the Company, as to that Employer's participating
Associates. The total amount of such contribution shall be allocated in
proportion to the amount that each Member's Contributions under Sections 4.01(a)
and (b) for such Plan Year, up to a total of 5% of such Member's Pay, bears to
the total amount of all Member Contributions up to 5% of such Members' Pay. Such
Company Matching Contribution shall be determined and paid to the Trustee as
soon as practicable after the close of each Fiscal Year.
3.03 ALLOCATION OF COMPANY CONTRIBUTIONS. The Company Contributions shall
be allocated only to the Company Accounts of Members who are employed by the
Employer on the last day of the Plan Year and on behalf of Members whose
employment has terminated during the Plan Year by reason of Retirement, death or
Disability. Company Profit Sharing Contributions shall be credited to eligible
Members' Company Profit Sharing Contribution Accounts. Company Profit Sharing
Contributions allocated prior to or as of July 31, 1997 shall be fully vested;
Company Profit Sharing Contributions allocated thereafter shall be subject to
the vesting provisions of Section 6.07. Company Matching Contributions shall be
subject to the vesting provisions of Section 6.07 and to the withdrawal penalty
provisions of Section 8.02(a). No Company Matching Contribution shall be made
with respect to a Member Before-Tax Contribution in excess of the Code Section
402(g) and 414(v) limit, as revised from time to time.
3.04 PROFIT SHARING ALLOCATION FORMULA. The Company Profit Sharing
Contribution, if any, shall be allocated to all Members eligible to share in the
contribution according to the ratio that each Member's Allocation Pay Amount for
the Plan Year bears to the total Allocation Pay Amount for all eligible Members
for the Plan Year. For this purpose the term eligible Members includes Members
in both the Puerto Rico Plan and this Plan.
11
3.05 INVESTMENT OF THE COMPANY CONTRIBUTION. The amounts allocated to each
Member pursuant to Section 3.03 shall be credited to his Company Accounts and
invested in one or more of the Investment Funds described in Section 5.01 and in
the percentages designated by the Member in the investment election filed
pursuant to Section 5.02 effective at the time the amount is allocated.
3.06 RETURN OF COMPANY CONTRIBUTIONS.
(a) If, after the Company Contribution has been made and allocated, it
should appear that, through oversight or a mistake of fact or law, a
Member (or an Associate who should have been considered a Member) who
should have been entitled to share in such contribution, receives no
allocation or receives an allocation which was less than he should have
received, the Company may, at its election and in lieu of reallocating
such contribution, make a special make-up contribution for the Company
Account of such Member in an amount sufficient to provide for him the same
addition to his Company Account as he should have received. Similarly, if
a Member received an allocation which was more than he should have
received (or an Associate was inappropriately included in the Plan), the
Company, at its election, may reallocate such contribution, offset other
Company contributions against such allocation, or use such allocation to
pay Plan expenses.
(b) Each contribution made to the Trust shall be made on the condition
that it is currently deductible by the Company or Employer under Code
Section 404 for the taxable year with respect to which the contribution is
made. If a contribution subsequently is determined, whether in whole or in
part, not to be currently deductible as provided in the preceding
sentence, then, within one year of the date of disallowance of the
deduction of such Company Contribution, an amount equal to the disallowed
deduction shall be returned to the Company or Employer.
(c) Earnings attributable to a contribution that is returned pursuant to
Subsection (a) or (b) above shall not be withdrawn, but losses
attributable thereto shall reduce the amount returned to the Company
and/or Employer.
12
SECTION 4
MEMBER CONTRIBUTIONS
4.01 PROCEDURE FOR MAKING CONTRIBUTIONS.
(a) AFTER-TAX CONTRIBUTIONS. Subject to the limitations set forth in
Sections 4.02, 4.03 and 4.04, each Member may contribute to the Plan an
amount (in whole percentage points) equal to not less than 1% nor more
than 15% (effective May 1, 2002, 75%) of his Pay as he shall have
designated pursuant to procedures established by the Company (which may
establish lower permissible After-Tax Contributions for Highly Compensated
Employees); provided, however, that a Member shall not contribute, or
elect to have contributed on his behalf, amounts with respect to Pay
received by him after the close of the calendar year during which his
employment terminates and further provided that any Before-Tax
Contributions made on behalf of the Member shall reduce, by the percentage
which he elects to have contributed pursuant to Section 4.01(b)(i), the
percentage of Pay that the Member may contribute pursuant to this Section
4.01(a).
(b) BEFORE-TAX CONTRIBUTIONS.
(i) Subject to the limitations set forth below, each Member may
elect that his Employer shall contribute directly to the Trust Fund
an amount equal to a whole percentage of his Pay, not less than 1%
nor greater than such percentage as may be determined from time to
time by the Company which amount shall be his Before-Tax
Contribution. The maximum Before-Tax Contribution by a Member
determined to be a Highly Compensated Employee under Section 4.02,
for the Plan Year in question, may be further restricted or limited
by the Company or Committee from time to time.
(ii) Pursuant to Section 2.01(c), each eligible Member shall be
deemed to have elected to make a three percent (3%) Before-Tax
Contribution, unless the Member elects otherwise in accordance with
procedures established by the Committee.
(c) Notwithstanding any election in accordance with Section 4.01(b), if
the Committee at any time determines that all or any portion of the
Member's Before-Tax Contributions should be treated as After-Tax
Contributions in order for the Before-Tax Contribution provisions of the
Plan to qualify as a "qualified cash or deferred arrangement" for purposes
of Code Section 401(k), or if the Actual Deferral Percentage standards set
forth in Code Section 401(k)(3) are not met at the end of the Plan Year,
then the Committee, in its sole and absolute discretion,
(i) may, in accordance with Section 4.02 below, limit the amount
which shall be contributed by the Employer as Before-Tax
Contributions after the date of such determination on behalf of all
or any portion of the Members and,
13
(ii) may, except with respect to situations in which Section 4.01(h)
applies, (and prior to March 15 of the calendar year following the
Plan Year in which such contributions are made) declare all or such
portion of the Before-Tax Contributions theretofore or thereafter
made on behalf of all or a portion of the Members to be After-Tax
Contributions. Effective January 1, 1997, if Before-Tax
Contributions are made to another plan or plans, this Plan and such
other plans must be aggregated for purposes of Section 410(b) of the
Code (other than the average benefit percentage test).
(d) The Employer shall (i) deduct a Member's After-Tax Contributions from
the Pay of the Member in such installments as the Employer may deem
appropriate, (ii) contribute a Member's Before-Tax Contributions on behalf
of the Member, and (iii) reduce the Pay that is paid to the Member
directly in cash by an amount equal to the Member's Before-Tax
Contributions in such installments as the Employer shall deem appropriate.
The amounts so deducted and so contributed shall be paid by the Employer
to the Trustee not later than 15 days following the end of the month with
respect to which such amounts are to be so deducted and contributed or
within such shorter period of time as may be designated under the Code,
ERISA or related regulations. The Employer may, from time to time, make
estimated contribution payments to the Trustee during each month.
(e) Effective with the first payroll period beginning in any calendar
month, or as of such other effective time as may be determined by the
Committee, a Member may elect to change the rate of his After-Tax
Contributions to any other rate permitted by Subsection (a) of this
Section 4.01 and may elect to change the amount to be contributed by the
Employer directly to the Trust Fund as Before-Tax Contributions to an
amount equal to an amount permitted by Subsection (b) of this Section 4.01
with respect to such contributions to be made after the effective date of
the election, pursuant to procedures established by the Committee.
(f) Not later than 15 days prior to the beginning of a payroll period of a
Member, or not later than such other date as may be determined by the
Committee, such Member may elect, pursuant to procedures established by
the Committee, (i) to suspend making After-Tax Contributions and (ii) that
the Employer should suspend making Before-Tax Contributions on his behalf,
all as of the beginning of such payroll period. Not later than 15 days
prior to the beginning of a payroll period of a Member, or not later than
such other date as may be determined by the Committee, such Member may
elect (i) to resume making After-Tax Contributions and, (ii) that the
Employer shall resume making Before-Tax Contributions on his behalf, by
indicating any amount of contributions permitted under Subsection (a) and
designating an amount equal to any amount of Pay as Before-Tax
Contributions that is permitted under Subsection (b) hereof.
(g) Contributions pursuant to this Section 4.01 shall be credited to
Member Accounts.
14
(h) Notwithstanding any election in accordance with Subsection (b), the
total amount of a Member's Before-Tax Contributions and other
contributions made by the Member under Code Section 401(k) to another plan
qualified under Code Section 401(a) for any calendar year shall not exceed
$11,000 (as adjusted from time to time by the Secretary of the Treasury or
his delegate, pursuant to Code Section 415(d)). If any Member may reach
the $11,000 limit (as adjusted) the Committee can direct that all or any
portion of such Member's Contributions during such year shall be After-Tax
Contributions regardless of such Member's elections pursuant to Sections
4.01(a) and 4.01(b). Effective May 1, 2002, all employees who are eligible
to make elective deferrals under this Plan and who have attained age 50
before the close of the Plan Year shall be eligible to make catch-up
contributions in accordance with, and subject to the limitations of,
section 414(v) of the Code. Such catch-up contributions shall not be taken
into account for purposes of the provisions of the Plan implementing the
required limitations of sections 402(g) and 415 of the Code. The Plan
shall not be treated as failing to satisfy the provisions of the Plan
implementing the requirements of sections 401(k)(3), 401(k)(11),
401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the
making of such catch-up contributions.
(i) The Committee shall provide each new Member a notice that explains the
procedure for making Before-Tax Contributions under Sections 4.01(b) and
2.01(c), including the Member's right to elect to make no Before-Tax
Contribution from his or her Pay and the manner in which the amount of
such contributions may be changed. In addition, the Committee shall
provide an annual notice to each Member indicating his or her Before-Tax
Contributions as a percentage of Pay, describing the right to alter and
the procedure for changing such percentage, and explaining the timing for
implementation of any such change.
4.02 LIMITATIONS ON AND DISTRIBUTIONS OF BEFORE-TAX CONTRIBUTIONS FOR
HIGHLY COMPENSATED EMPLOYEES.
The Committee is authorized to reduce to the extent necessary the
maximum contributions under Section 4.01(b) for Highly Compensated Employees
prior to the close of the Plan Year if the Committee reasonably believes that
the reduction is necessary to prevent the Plan from failing Code Section
401(k)(3). Such adjustments shall be made in accordance with rules prescribed by
the Employer.
If the Plan fails to satisfy Code Section 401(k)(3), the Plan shall
correct the failure within 12 months after the last day of such Plan Year under
any method of combination of methods allowed under Code Section 401(k)(8) or
Treasury Regulation Section 1.401(k)-1(f), taking into account any adjustments
necessary due to changes to Code Section 401(k)(8)(C) that are reflected in the
regulations. For purposes of this Section 4.01, the actual deferral percentage
of Non-Highly Compensated Employees shall be determined as of the Plan Year for
which
15
the Plan must satisfy one of the tests in Code Section 401(k)(3), unless the
Employer elects to determine such actual deferral percentage as of the Plan Year
preceding the Plan Year for which the Plan must satisfy one of the tests in Code
Section 401(k)(3). Any such election shall not be changed except as provided by
the Secretary of the Treasury.
Effective January 1, 1997, if for any Plan Year, the Plan satisfies
neither of the tests set forth in Code Section 401(k)(3), the Trustee shall be
directed by the Committee to return to each Highly Compensated Employee his or
her portion of the excess contributions (plus the income or less the loss
allocable to such excess contributions) for such Plan Year within 12 months
after the last day of such Plan Year. A Highly Compensated Employee shall
forfeit any Matching Contributions which were contributed on account of any
portion of the excess contributions even if such Matching Contributions are
vested. Each Highly Compensated Employee's portion of the excess contributions
for a Plan Year shall be determined under a two step process. First, the
aggregate amount of excess contributions shall be calculated. This shall be done
by reducing the actual deferral percentages of those Highly Compensated
Employees with the highest actual deferral percentages to the extent necessary
but not below the next highest level of actual deferral percentages. This
process shall be repeated, to the extent necessary, until the actual deferral
percentages for the group of Highly Compensated Employees satisfies one of the
tests set forth in Code Section 401(k)(3). The aggregate amount of excess
contributions shall be calculated by multiplying the actual deferral percentage
reduction for each Highly Compensated Employee by his or her compensation
(within the meaning of Code Section 414(s)) for the Plan Year and adding the
product of each such multiplication. Second, the aggregate amount of excess
contributions to be returned shall be allocated by reducing the Before-Tax
Contributions of those Highly Compensated Employees with the highest amount of
Before-Tax Contributions to the extent necessary but not below the next highest
amount of Before-Tax Contributions. This process shall be repeated, to the
extent necessary, until all excess contributions to be returned shall be
allocated among the Highly Compensated Employees. The income or loss allocable
to a Highly Compensated Employee's portion of the excess contribution will be
determined under such reasonable method as the Committee shall establish,
provided the method does not discriminate in favor of Highly Compensated
Employees, is used consistently for all Members and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income to Members' accounts.
If the Trustee is required to distribute both elective deferrals and
excess contributions for a Plan Year, the Trustee shall (a) calculate and
distribute elective deferrals before determining the excess contributions to be
distributed to Highly Compensated Employees; (b) calculate the actual deferral
percentage including the amount of excess deferrals distributed pursuant to (a)
above; and (c) distribute excess contributions to Members by reducing the excess
contributions distributed to a Member by the amount of excess elective deferrals
distributed to such Member.
The actual contribution percentage and the actual deferral
percentage of a Highly Compensated Employee who is eligible to participate in
two or more qualified plans which have cash or deferred arrangements or matching
contributions or after-tax contributions features (other than an employee stock
ownership plan) maintained by the Employer or a member of the Group shall be
calculated by treating all such cash or deferred arrangements in which the
Highly Compensated Employee is eligible to participate as one cash or deferred
arrangement for purposes
16
of calculating the actual deferral percentage for such Highly Compensated
Employee, and all such features in which the Highly Compensated Employee is
eligible to participate as one feature for purposes of calculating the actual
contribution percentage for such Highly Compensated Employee with respect to
years ending within the same calendar year.
4.03 DISTRIBUTIONS OF EXCESS DEFERRALS.
If a Member's elective deferrals for any calendar year exceed
$10,500 (or such higher amount prescribed under Section 402(g) of the
Code), then the Member may file an election form prescribed by the
Committee with the Employer/Company designating in writing the amount of
the Member's Excess Before-Tax Deferrals to be distributed from this Plan.
Any such election form must be filed with the Committee no later than the
first March 1 following the close of such calendar year in order for the
Committee to act on it. If such an election form is timely filed, the
Trustee shall distribute to the Member the amount of such Excess
Before-Tax Deferrals which the Member has allocated to this Plan together
with any income or less any loss allocable to such amount on or before the
first April 15 following the close of such calendar year. In the case of a
Highly Compensated Employee, any matching contributions which were
contributed on account of the Excess Before-Tax Deferrals being
distributed will be forfeited, even if such matching contributions are
vested. For purposes of this Section 4.03, the income or loss allocable to
such Excess Before-Tax Deferrals will be determined under such reasonable
method as the Committee shall establish, provided the method does not
discriminate in favor of Highly Compensated Employees, is used
consistently for all Members and for all corrective distributions under
the Plan for the Plan Year, and is used by the Plan for allocating income
to Members' accounts.
4.04 LIMITATIONS ON AND DISTRIBUTIONS OF AFTER-TAX EMPLOYEE CONTRIBUTIONS
AND MATCHING CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
The Committee is authorized to reduce to the extent necessary the maximum
amount of Employee After-Tax Contributions and Employer Matching Contributions
under Sections 4.01(a) and 3.02 contributed on behalf of any Highly Compensated
Employee prior to the close of the Plan Year if the Committee reasonably
believes that such adjustment is necessary to prevent the Plan from failing Code
Section 401(m)(2). Such reduction shall be made in accordance with rules
prescribed by the Employer.
If the Plan fails to satisfy Code Section 401(m)(2), the Plan shall
correct the failure within 12 months after the last day of such Plan Year under
any method or combination of methods allowed under Treasury Regulation
1.401(m)-1(e), taking into account any adjustments necessary due to changes to
Code Section 401(m)(6)(c) that are not reflected in the regulations. For
purposes of this Section 4.04, the actual contribution percentage of Non-Highly
Compensated Employees shall be determined as of the Plan Year for which the Plan
must satisfy one of the tests in Code Section 401(m)(2), unless the Employer
elects to determine such actual contribution
17
percentage as of the Plan Year preceding the Plan Year for which the Plan must
satisfy one of the tests in Code Section 401(m)(2). Any such election shall not
be changed except as provided by the Secretary of the Treasury.
Effective January 1, 1997, if for any Plan Year, the Plan fails to
satisfy either of the tests set forth in Code Section 401(m)(2), the Trustee
shall be directed by the Committee to distribute to each Highly Compensated
Employee his or her vested portion (and forfeit the nonvested portion) of the
excess aggregate contributions (plus the income or less the losses allocable to
such excess aggregate contributions) for such Plan Year within 12 months after
the last day of such Plan Year. Each Highly Compensated Employee's portion of
the excess aggregate contributions for a Plan Year shall be determined under a
two step process. First, the aggregate amount of excess aggregate contributions
shall be calculated. This shall be done by reducing the actual contribution
percentages of those Highly Compensated Employees with the highest actual
contribution percentages to the extent necessary but not below the next highest
level of actual contribution percentages. This process shall be repeated, to the
extent necessary, until the actual contribution percentage for the group of
Highly Compensated Employees satisfies one of the tests set forth in Code
Section 401(m)(2). The aggregate amount of excess aggregate contributions shall
be calculated by multiplying the actual contribution percentage reduction for
each Highly Compensated Employee by his or her compensation (within the meaning
of Code Section 414(s)) for the Plan Year and adding the product of each such
multiplication. Second, the aggregate amount of excess aggregate contributions
to be distributed or forfeited shall be allocated by first reducing any
After-Tax Contributions and then any Matching Contributions made by or on behalf
of Highly Compensated Employees with the highest total amount of After-Tax
Contributions and Matching Contributions to the extent necessary but not below
the next highest total amount of After-Tax Contributions and Matching
Contributions. This process shall be repeated, to the extent necessary, until
all excess aggregate contributions to be distributed or forfeited shall be
allocated among the Highly Compensated Employees. A Highly Compensated Employee
whose After-Tax Contributions are determined to be excess aggregate
contributions shall forfeit any Matching Contributions which were contributed on
account of such After-Tax Contributions, even if such Matching Contributions are
vested. The income or loss allocable to a Highly Compensated Employee's portion
of the excess aggregate contributions will be determined under such reasonable
method as the Committee shall establish, provided the method does not
discriminate in favor of Highly Compensated Employees, is used consistently for
all Members and for all corrective distributions under the Plan for the Plan
Year, and is used by the Plan for allocating income to Members' accounts.
4.05 LIMITATIONS ON MULTIPLE USE OF ALTERNATIVE LIMITATION.
(a) Repeal of Multiple Use Test.
The Multiple use test described in Treasury Regulation section
1.401(m)-2 shall not apply for Plan Years beginning after December
31, 2001.
18
(b) Special Definitions.
All terms used in this Section 4 shall have the meaning given
such terms in Code Sections 401(k) and 401(m) and the regulations
thereunder.
19
SECTION 5
INVESTMENT PROVISIONS
5.01 INVESTMENT FUNDS.
(a) There shall be established as part of the Trust Fund a reasonable
range of investment options. The Committee may from time to time, in its
discretion, change, delete or add Investment Funds available within the
Trust Fund; provided that unless and until the Plan is amended
accordingly, the Plan shall continue to provide a Payless Common Stock
Fund as an investment option.
(b) Income from and proceeds of sales of investments in each Investment
Fund shall be reinvested in the same Investment Fund. Any income or other
taxes payable with respect to a Fund shall be charged to such Fund.
(c) A Trustee may, from time to time, make temporary investments in short
term obligations of the United States Government, commercial paper, or
other investments of a short term nature, pending investment in an
Investment Fund.
5.02 INVESTMENT DIRECTION.
(a) A Member may elect that his Member Contributions be invested in 1%
increments totaling 100% in one or more of the Investment Funds. Such
election must be made pursuant to procedures prescribed by the Committee.
Such election shall be effective until and unless a Member makes a
different election for any period, but only as provided for under
Subsection 5.02(b) and Subsection 5.02(c). If the Member fails to file a
timely initial investment election, he shall be deemed to have elected to
have 100% of his Member Contributions invested in the stable, fixed income
investment as may be determined by the Committee. Until such time as the
Committee determines otherwise and so notifies Members, a Member's share
of any Company Contributions, when allocated as of Plan Year-end, shall be
invested in the same Investment Funds in the same proportions as the
Member has elected in connection with investment of his Member
Contributions at the time the Company Contribution is contributed to the
Trust.
(b) A Member may change his election with respect to future Member and
Company Contributions effective pursuant to procedures prescribed by the
Committee and may not change his election in any other manner except as
provided in Subsection 5.02(c).
(c) Effective as of the date determined by the Committee, and pursuant to
procedures prescribed by the Committee, a Member may elect to have any or
all of the value in any of the Investment Funds which are credited to his
Member and/or Company Accounts transferred and invested in any one or more
of the Investment Funds.
20
(d) Notwithstanding this Section 5.02, effective March 20, 2000, during
the black out period as determined by the Committee and the Trustee
established to change to daily valuation or a change in recordkeepers, no
investment transfers or changes may be made by a Member unless provided in
Section 6.06. Notwithstanding anything to the contrary, no loans,
withdrawals or distributions shall be made during any such blackout period
except as provided by the Committee.
21
SECTION 6
ACCOUNTS
6.01 MEMBER ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Member
Contributions are invested separate Member Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to his
contributions. The Member's After-Tax Contributions shall be credited to a
separate Member After-Tax Account. The Member's Before-Tax Contributions shall
be credited to a separate Member Before-Tax Account. The Member's or Associate's
Rollover Contribution shall be credited to a separate Member Rollover
Contribution Account.
6.02 COMPANY ACCOUNTS. The Committee shall maintain or cause to be
maintained for each Member under each Investment Fund in which his Company
Contributions are invested separate Company Accounts which shall reflect the
portion of his interest in such Investment Fund which is attributable to Company
Contributions, as well as to contributions made by an Employer under prior plans
and to any income or earnings attributable to such Company Contributions and
prior plan contributions. The Member's Company Matching Contributions shall be
credited to a separate Company Matching Contribution Account. The Member's
Company Profit Sharing Contribution, if any, shall be credited to a separate
Company Profit Sharing Contribution Account.
6.03 MAINTENANCE OF ACCOUNTS. For the purposes of maintaining Accounts
pursuant to this Section 6, each Investment Fund shall be divided into Units,
and the Interest of each Member in such Investment Fund shall be evidenced by
the number of Units in such Investment Fund credited to his Accounts.
6.04 VALUATION OF ACCOUNTS. As of each Valuation Date the Committee shall
determine the value of a Unit in each Account by dividing the current market
value of all property in each such Account as of such Valuation Date (after
deducting any expenses or other amounts including withdrawals properly
chargeable against such Account) by the number of Units then outstanding to the
credit of all Members in each such Account.
6.05 MEMBER STATEMENTS. The Committee shall furnish or cause to be
furnished to each Member a statement of his Company and Member Accounts, at
least once each year, or more frequently if required by applicable law.
6.06 SHARES OF PAYLESS SHOESOURCE, INC. ("PAYLESS STOCK") IN THE PAYLESS
COMMON STOCK FUND.
(a) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right to direct
the Trustee with respect to the vote of the number of shares of Payless
Stock attributable to Units credited to him in the Payless
22
Common Stock Fund as of the latest practicable Valuation Date prior to or
contemporaneous with the record date set by the Company for each meeting
of shareowners of the Company. For such purpose the Trustee shall furnish
to each such Member prior to each such meeting the proxy statement for
such meeting, together with a form to be returned to the Trustee on which
may be set forth the Member's instructions as to the manner of voting such
shares of stock. Upon receipt of such instructions, the Trustee shall vote
such shares in accordance therewith. If a Member's instructions are not
received by the Trustee in a timely manner, the Trustee shall vote such
Member's shares in the same proportion as the shares of Common Stock for
which instructions were actually timely received from Members. The Trustee
shall not divulge the instructions of any Member.
(b) Each Member (or beneficiary of a deceased Member) who has Accounts
invested in the Payless Common Stock Fund shall, as a named fiduciary
within the meaning of Section 403(a)(1) of ERISA, have the right with
respect to the number of shares of Payless Stock attributable to Units
credited to him in the Payless Common Stock Fund as of the latest
practicable Valuation Date, to direct the Trustee in writing as to the
manner in which to respond to a tender or exchange offer with respect to
Payless Stock, and the Trustee shall respond in accordance with the
instructions so received. The Trustee shall utilize its best efforts to
timely distribute or cause to be distributed to each Member such
information as will be distributed to shareowners of the Company in
connection with any such tender or exchange offer, together with a form
requesting instructions on whether or not such shares will be tendered or
exchanged. If the Trustee shall not receive timely direction from a Member
as to the manner in which to respond to such a tender or exchange offer,
the Trustee shall not tender or exchange any shares of Payless Stock with
respect to which such Member has the right of direction. Tenders as a
result of a self-tender offer by the Company shall continue
notwithstanding any investment change blackout. The Trustee shall not
divulge the instructions of any member. The proceeds from the tender or
exchange of shares attributable to Units in Payless Common Stock
Investment Fund accounts of Members shall be transferred to one of the
Investment Funds described in Section 5.01 pursuant to a procedure
established by the Committee.
6.07 VESTING IN MEMBER AND COMPANY ACCOUNTS.
(a) VESTING SCHEDULE. A Member shall have a fully vested interest at all
times (i) in his Member Accounts and (ii) in his Company Profit Sharing
Contribution Account balance determined as of July 31, 1997. A Member who
has completed at least two full Years of Service as of August 1, 1997 also
shall be fully vested at all times (i) in his Company Matching
Contribution Account and (ii) in his Company Profit Sharing Contribution
Account determined at any time after July 31, 1997. The Company Matching
Contribution Account of a Member who is not or was not credited with at
least two Years of Service as of August 1, 1997 and his Company Profit
Sharing Contribution Account attributable to Company Profit Sharing
Contributions, if any, based on such Member's
23
eligibility for such contributions after August 1, 1997, shall vest
according to the following schedule:
Vesting Service Vested Interest
- ------------------ ---------------
Fewer than 2 years 0%
2 years 25%
3 years 50%
4 years 75%
5 years or more 100%
Notwithstanding the foregoing, a Member's interest in his Company
Matching Contribution Account and his Company Profit Sharing Contribution
Account shall become fully vested if the Member terminates employment on
account of Retirement, death or Disability.
(b) CASH-OUT DISTRIBUTIONS TO PARTIALLY VESTED MEMBERS AND RESTORATION OF
FORFEITURES. If, pursuant to Section 10.01, a partially-vested Member
receives a cash-out distribution before he incurs a Forfeiture Break in
Service (as defined in Subsection (e) below), the cash-out distribution
will result in an immediate forfeiture of the nonvested portion(s) of the
Member's Company Matching and Company Profit Sharing Contribution
Account(s). See Subsection (e) below. A partially-vested Member is a
Member whose Vested Interest, determined under Section 6.07(a), in either
his Company Matching Contribution Account or his Company Profit Sharing
Contribution Account, or both, is less than 100%. A cash-out distribution
is a distribution of the entire vested portion of the Member's Account(s).
(i) A partially-vested Member who is reemployed by an Employer after
receiving a cash-out distribution of the vested portion of his
Account(s) shall have such forfeited amount restored, unless the
Member no longer has a right to restoration under this subparagraph
(i). The amount restored by the Plan Administrator shall be the same
dollar amount as the dollar amount of his Account(s) on the
Valuation Date immediately preceding the date of the cash-out
distribution, unadjusted for any gains or losses occurring
subsequent to that Valuation Date but reduced by the amount of the
prior cash-out distribution. Restoration of the Member's Account
balance(s) includes restoration of all Code Section 411(d)(6)
protected benefits with respect to the restored Account(s) in
accordance with applicable Treasury regulations. The Plan
Administrator will not restore a reemployed Member's Account
balance(s) under this subparagraph (i) if the Member has incurred a
Forfeiture Break in Service (as defined in Subsection (d) below).
24
(ii) If restoration of the Member's Account(s) is permitted under
subparagraph (i) above, the Plan Administrator will restore the
Member's Account(s) on the same day as the date of allocation of the
Company Contribution for the Plan Year during which such Member was
reemployed by an Employer. To restore the Member's Account(s), the
Plan Administrator, to the extent necessary, will allocate to the
Member's Account(s):
(A) first, the amount, if any, of Member forfeitures otherwise
available for allocation under Subsection (f) below;
(B) second, deductible Employer contributions for the Plan
Year to the extent made under a discretionary formula; and
(C) third, as otherwise permitted by law.
The Plan Administrator will not take into account any allocation under this
Subsection (b) in applying the limitation on allocations under Section 13.
(iii) The deemed cash-out rule applies to a 0% vested Member. A 0%
vested Member is a Member whose Account(s) derived from Employer
contributions is (are) entirely forfeitable at the time of his
termination of employment. Under the deemed cash-out rule, the Plan
Administrator will treat the 0% vested Member as having received a
cash-out distribution on the date of the Member's termination of
employment or, if the Member's Account(s) is (are) entitled to an
allocation of Employer contributions for the Plan Year in which he
terminates employment, on the last day of that Plan Year.
(c) DETERMINATION OF VESTING SERVICE. For purposes of determining a
Member's Vested Interest in his Company Contributions Account(s) under
Subsection (a) above, a Member shall be credited with that number of years
of Vesting Service determined by adding together all of the Associate's
Periods of Service, whether or not consecutive. Notwithstanding the
foregoing, Vesting Service shall not include any Period of Service before
the Plan Year in which an Associate attains age eighteen (18). Only whole
years of service shall be taken into account for purposes of applying the
schedule set forth in Subsection (a) above, and, for purposes of
determining a Member's number of whole years of service, non-successive
Periods of Service must be aggregated, with 365 days of service being
deemed to constitute one year. For purposes of determining a Member's
Period of Service, the Service Spanning rules described in Section 1.51(g)
shall apply.
(d) FORFEITURE BREAK IN SERVICE. For purposes of this Section 6.07, a
"Break in Service" is a Period of Severance of at least 365 consecutive
days. A "Forfeiture Break in Service" occurs when a Member or former
Member incurs 5 consecutive Breaks in Service.
25
(e) FORFEITURE OCCURS. A Member's forfeiture, if any, of his Account
balance(s) derived from Company contributions occurs under the Plan on the
earlier of:
(i) the last day of the last pay period ending within the Plan Year
in which the Member first incurs a Forfeiture Break in Service; or
(ii) the date the Member receives a cash-out distribution.
The Plan Administrator shall determine the percentage of a Member's
Account(s) forfeiture, if any, under this Subsection (e) solely by
reference to the vesting schedule of Section 6.07(a). As of the last day
of each Plan Year, the total amount of forfeitures which occurred during
such Plan Year shall be calculated and such amount shall be applied (i) to
restore under (b) above any amounts previously forfeited from rehired
Members' Accounts, (ii) to pay Administrative Expenses under Section 7.01
and (iii) the balance, if any, shall be added to and allocated with the
Company Matching Contribution for that Plan Year.
(f) FORMER MAY PLAN MEMBERS. The provisions of this Subsection (f) apply
to a Member who previously was employed by the Employer, when it was part
of the Group which included The May Department Stores Company, and who at
the termination of his employment had Company Accounts in the May Plan
which were forfeited as a result of termination of employment. If such
Member has not incurred five consecutive Breaks in Service as defined in
Section 6.07(b), the value of the Member's Company Account forfeited under
the May Plan will be restored under this Plan (in the manner described in
Subsection (b) above) and will be 100% vested.
26
SECTION 7
EXPENSES
7.01 ADMINISTRATIVE EXPENSES. To the extent permitted by applicable law,
the costs and expenses for administering this Plan, consisting of Trustee fees
and expenses, Investment Manager fees and expenses, fees and expenses of outside
experts, expenses of maintaining records under Section 6 of the Plan, and all
other administrative expenses of the Plan, shall be paid out of the Trust Fund
unless the Company elects to pay them with its own funds. Costs incident to the
purchase and sale of securities, such as brokerage fees, commissions and stock
transfer fees, are not regarded as administrative expenses and shall be borne by
the appropriate Investment Fund as determined by the Trustee or Committee.
27
SECTION 8
WITHDRAWALS DURING EMPLOYMENT
8.01 WITHDRAWALS PROHIBITED UNLESS SPECIFICALLY AUTHORIZED. No withdrawal
from the Plan shall be permitted prior to a Member's termination of employment,
except as provided in Section 8.02.
8.02 AUTHORIZED WITHDRAWALS.
(a) Prior to his termination of employment, a Member may elect to
withdraw, in cash, any or all of the value in his Member After-Tax Accounts.
However, in the event a Member elects to withdraw all or a portion of his
After-Tax Contributions made after August 1, 1997, such Member shall forfeit his
right to fifty percent (50%) of the Company Matching Contribution, if any,
otherwise allocable in connection with his Member Contributions for the Plan
Year in which the withdrawal occurs.
(b) Prior to his termination of employment, a Member may elect to
withdraw, in the event of a "hardship", an amount in cash up to (i) the total
amount of the Before-Tax Contributions made to the Trust on his behalf, or (ii)
the value in his Member Before-Tax Account, whichever is less. In any event the
amount withdrawn may not be greater than the amount determined by the Committee
as being required to meet the immediate financial need created by the "hardship"
and not reasonably available from other resources of the Member, whichever
amount is less. The term "hardship" means a heavy financial hardship in light of
immediate and heavy financial needs as determined by the Committee in accordance
with Internal Revenue Service regulations. The amount of an immediate and heavy
financial need may include any amounts necessary to pay any federal, state or
local taxes or penalties reasonably anticipated to result from the distribution.
The determination shall be made in a nondiscriminatory manner. Hardship shall
include but not be limited to the following:
(i) Medical expenses described in Code Section 213(d) previously
incurred by the Member, the Member's spouse, or any of the Member's
dependents (as defined in Code Section 125) or necessary for these
persons to obtain medical care described in Section 213(d);
(ii) Purchase (excluding mortgage payments) of a principal residence
for the Member;
(iii) Payment of tuition, related educational fees, and room and
board expenses for the next 12 months of post-secondary education
for the Member, his or her spouse, children, or dependents (as
defined in Code Section 152);
28
(iv) The need to prevent the eviction of the Member from his or her
principal residence or foreclosure on the mortgage of the
Member's principal residence.
(v) (Effective January 1, 2006). Payments for burial or funeral
expenses for a Member's deceased parent, spouse, children or
dependents (as defined in Section 152 of the Code and effective
January 1, 2006), without regard to Section 152(d)(1)(B).
(vi) (Effective January 1, 2006). Expenses for the repair of damage to
Member's principal residence that would qualify for the casualty
deduction under Section 165 of the Code (determined without
regard to whether the loss exceeds 10% of adjusted gross income).
The Committee may adopt written guidelines which identify additional
circumstances constituting hardship and which provide procedures to be followed
in the administration of hardship withdrawal requests, which guidelines are
hereby incorporated herein.
In addition, such hardship must be one which in the judgment of the
Committee, based on the Member's representations, cannot be relieved (1) through
reimbursement or compensation by insurance or otherwise, (2) by reasonable
liquidation of the Member's assets to the extent such liquidation would not
itself cause an immediate and heavy financial need, (3) by cessation of Member
Contributions under the Plan, (4) by other distributions or loans from employee
benefit plans, including this Plan, maintained by the Company or any other
employer or (5) by borrowing from commercial sources on reasonable commercial
terms. The Member shall be required to submit documentation, to be determined by
the Committee, with his hardship withdrawal request to enable the Committee to
make a judgment regarding the validity of such hardship withdrawal request. For
any Member who has attained age 59 1/2, the "hardship" requirement shall be
deemed waived.
(c) A Member who was a Participant in or eligible to be a Participant in
the Volume Shoe Corporation Profit Sharing Plan (the "Volume Plan") as of
December 31, 1988 and who had an account balance in the Volume Plan attributable
to Employer Contributions made to the Volume Plan before July 31, 1976 and which
account became a Company Account under The May Department Stores Company Profit
Sharing Plan and which has been transferred to this Plan, shall be entitled to
withdraw the market value of such account balance determined (and frozen) as of
December 31, 1988.
(d) Associates with Member Rollover Contribution Accounts may elect to
withdraw their Member Rollover Contribution Accounts prior to termination of
employment.
(e) A withdrawal election shall be made pursuant to application procedures
established by the Committee. Contribution totals and Account values shall be
determined as of the Valuation Date coinciding with or next following the filing
of the withdrawal election. If the Member Accounts from which withdrawal is made
are in more than one Investment Fund, the withdrawal shall be pro rata from each
such Investment Fund except in the case the Member is subject to
29
Section 16 of the Securities Exchange Act of 1934 or has been designated as a
"Designated Insider," in which case such Member's withdrawal will be taken first
from such Member's Investment Funds other than the Payless Common Stock Fund.
30
SECTION 9
BENEFITS UPON RETIREMENT, DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT
9.01 BENEFITS. Upon a Member's Retirement, death, Disability, or other
termination of employment, the value of his Member Accounts and of his vested
Company Accounts shall be determined as of the Valuation Date prior to the date
the distribution is calculated. A temporary Authorized Leave of Absence for
Military Service or for other purposes approved by the Employer shall not, while
any such Authorized Leave of Absence is validly in effect, be regarded as a
termination of employment.
9.02 BENEFICIARY. Any benefits payable on account of a Member's death
shall be paid to such Member's spouse. If such Member has no spouse or if such
Member's spouse shall have consented to the naming of another beneficiary, such
benefits shall be paid to the person or persons (including, without limitation,
estates, trust, or other entities) last named as beneficiary by such Member on
an appropriate form filed with the Committee. A spouse's consent shall
acknowledge the effect of the consent and be in writing, witnessed by a Plan
representative or notary public. A spouse's consent shall be irrevocable. If no
beneficiary has been so named or the named beneficiary does not survive the
Member, any payment to be made under this Plan on account of a Member's death
shall be paid to such Member's spouse, or, if he has no spouse, to such Member's
estate. Whenever permitted by the Code or regulations thereunder, the Committee
may waive the requirements that a spouse's consent be obtained. Such waiver may
be on a case by case basis or by categories.
31
SECTION 10
PAYMENT OF BENEFITS
10.01 TIME OF PAYMENT.
(a) All amounts distributable to a Member or Beneficiary pursuant to Section 9
shall, unless the Member makes an approved election pursuant to Section 10.01(b)
or 10.01(c), be paid in a lump sum payment to be made as soon as practicable
after the Valuation Date as of which the Account values are determined pursuant
to Section 9.01; provided, however, that any additional amounts which may be
allocated to a Member's Company Accounts resulting from a Company Contribution
in respect of the calendar year in which employment terminates shall be paid as
soon as practicable after such contribution.
Notwithstanding any provision of this Section 10 to the contrary, if the
present value of the nonforfeitable accrued benefit of a Member, including
Company Contributions, Member Contributions, Rollover Contributions and earnings
thereon (but excluding accumulated deductible employee contributions, if any)
exceeds $1,000, no partial or total distribution shall be made unless the Member
has consented thereto in writing in the manner required by law.
(b) A Member who was a Member of the May Plan as of June 30, 1990 may elect that
all Transferred Accounts distributable to him pursuant to Section 9 shall be
paid in annual installments over a period not to exceed ten years beginning with
the Valuation Date as of which the lump sum payment would otherwise be made. In
the event of the death of a Member prior to the expiration of such period, all
amounts which have not been distributed to him shall be paid in a lump sum to
his designated Beneficiary or his estate if there is no designated Beneficiary.
Subject to the foregoing, each such installment shall be paid as of a Valuation
Date and, until all the Accounts of the Member have been fully distributed, they
shall continue to be revalued as of each succeeding Valuation Date pursuant to
Section 6.04.
Notwithstanding the paragraph above, a Member who as of December 31, 1988
was or was entitled to be a Participant in the Volume Shoe Corporation Profit
Sharing Plan may elect that all Transferred Accounts distributable to him
pursuant to Section 9 be paid in the form of equal monthly installments over a
period not to exceed 120 months. Such payments shall otherwise be made in
accordance with the foregoing portion of this Subsection 10.01(b).
(c) A Member who is entitled to receive a distribution in excess of $1,000 may
elect to defer such distribution to the required minimum distribution age, as
determined by law from time to time. An election to defer distribution shall
conform to such requirements as to form, content, manner, and timing as shall be
determined by the Committee and which requirements shall be applied in a manner
which does not discriminate in favor of
32
Members who are highly compensated employees (within the meaning of Code
Section 414(q)). All Accounts of a Member who elects to defer his
distribution shall continue to be revalued as of each succeeding Valuation
Date pursuant to Section 6.04. A deferred distribution shall be paid when
such Member attains the required minimum distribution age or at such
earlier or later time as shall be determined by the Committee as permitted
by law. In the event of the death of a Member prior to distribution of the
deferred amounts, all amounts shall be distributed in a lump sum to his
designated Beneficiary or to his estate if there is no designated
Beneficiary. The value for payment shall be determined as of the Valuation
Date coincident with or next following such Member's birthday coincident
with the Member's required minimum distribution age or such other payment
date determined by the Committee.
10.02 FORM OF PAYMENT. All distributions shall be made in the form of
cash, except that distributions from the Payless Common Stock Fund shall be made
in the form of full shares of Payless Common Stock, as applicable (with payment
in cash for a fraction of a share) or in cash if elected by the Member or
Beneficiary. The rights extended to a Member hereunder shall also apply to any
Beneficiary or alternate payee of such Member.
10.03 INDIRECT PAYMENT OF BENEFITS. If any Member or Beneficiary has been
adjudged to be legally, physically or mentally incapable or incompetent, payment
may be made to the legal guardian or other legal representative of such Member
or Beneficiary as determined by the Committee. Such payments shall constitute a
full discharge with respect thereto.
10.04 INABILITY TO FIND MEMBER. If a Member or Beneficiary or other person
to whom a benefit payment is due cannot be found during the three years
subsequent to the date a distribution was required to be made under this Plan,
the Accounts shall be forfeited at the end of such three-year period. The value
of such Accounts as of the date the distribution was required to be made shall
be restored if such Member or Beneficiary or other person makes a claim.
10.05 REQUIRED MINIMUM DISTRIBUTIONS.
Notwithstanding anything to the contrary contained in the Plan, the
entire interest of a Member will be distributed in accordance with Code Section
401(a)(9) and the regulations thereunder beginning no later than the Member's
Required Beginning Date. The provisions of this Section will apply for purposes
of determining required minimum distributions for calendar years beginning with
the 2003 calendar year. Notwithstanding the other provisions of this Section,
distributions may be made under a designation made before January 1, 1984, in
accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility
Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of
TEFRA.
(a) If the Member dies before distributions begin, the Member's
entire interest will be distributed, or begin to be distributed, no later
than as follows:
(1) If the Member's surviving spouse is the Member's sole
designated beneficiary, then distributions to the surviving spouse
will begin by December 31
33
of the calendar year immediately following the calendar year in
which the Member died, or by December 31 of the calendar year in
which the Member would have attained age 70-1/2, if later.
(2) If the Member's surviving spouse is not the Member's sole
designated beneficiary, then distributions to the designated
beneficiary will begin by December 31 of the calendar year
immediately following the calendar year in which the Member died.
(3) If there is no designated beneficiary as of September 30
of the year following the year of the Member's death, the Member's
entire interest will be distributed by December 31 of the calendar
year containing the fifth anniversary of the Member's death.
(4) If the Member's surviving spouse is the Member's sole
designated beneficiary and the surviving spouse dies after the
Member but before distributions to the surviving spouse begin, this
subsection, other than subsection (a)(1), will apply as if the
surviving spouse were the Member.
For purposes of this subsection, unless subsection (a)(4) applies, distributions
are considered to begin on the Member's Required Beginning Date. If subsection
(a)(4) applies, distributions are considered to begin on the date distributions
are required to begin to the surviving spouse under subsection (a)(1). To the
extent the Plan provides for distributions in the form of annuities, if
distributions under an annuity purchased from an insurance company irrevocably
commence to the Member before the Member's Required Beginning Date (or to the
Member's surviving spouse before the date distributions are required to begin to
the surviving spouse under subsection (a)(1)), the date distributions are
considered to begin is the date distributions actually commence.
(b) Unless the Member's interest is distributed in the form of an annuity
purchased from an insurance company or in a single sum on or before the Required
Beginning Date, as of the first distribution calendar year distributions will be
made in accordance with subsections (c) and (d). To the extent the Plan provides
for distributions in the form of annuities, if the Member's interest is
distributed in the form of an annuity purchased from an insurance company,
distributions thereunder will be made in accordance with the requirements of
Code Section 401(a)(9) and the Treasury regulations.
(c) During the Member's lifetime, the minimum amount that will be
distributed for each distribution calendar year is the lesser of:
(1) the quotient obtained by dividing the Member's account balance
by the distribution period in the Uniform Lifetime Table set forth in
section 1.401(a)(9)-9 of the Treasury regulations, using the Member's age
as of the Member's birthday in the distribution calendar year; or
34
(2) if the Member's sole designated beneficiary for the distribution
calendar year is the Member's spouse, the quotient obtained by dividing
the Member's account balance by the number in the Joint and Last Survivor
Table set forth in section 1.401(a)(9)-9 of the Treasury regulations,
using the Member's and spouse's attained ages as of the Member's and
spouse's birthdays in the distribution calendar year.
Required minimum distributions will be determined beginning with the first
distribution calendar year and up to and including the distribution calendar
year that includes the Member's date of death.
(d) If the Member dies on or after the date distributions begin and there
is a designated beneficiary, the minimum amount that will be distributed for
each distribution calendar year after the year of the Member's death is the
quotient obtained by dividing the Member's account balance by the longer of the
remaining life expectancy of the Member or the remaining life expectancy of the
Member's designated Beneficiary, determined as follows:
(1) The Member's remaining life expectancy is calculated using the
age of the Member in the year of death, reduced by one for each subsequent
year.
(2) If the Member's surviving spouse is the Member's sole designated
beneficiary, the remaining life expectancy of the surviving spouse is
calculated for each distribution calendar year after the year of the
Member's death using the surviving spouse's age as of the spouse's
birthday in that year. For distribution calendar years after the year of
the surviving spouse's death, the remaining life expectancy of the
surviving spouse is calculated using the age of the surviving spouse as of
the spouse's birthday in the calendar year of the spouse's death, reduced
by one for each subsequent calendar year.
(3) If the Member's surviving spouse is not the Member's sole
designated beneficiary, the designated beneficiary's remaining life
expectancy is calculated using the age of the beneficiary in the year
following the year of the Member's death, reduced by one for each
subsequent year.
If the Member dies on or after the date distributions begin and there is no
designated beneficiary as of September 30 of the year after the year of the
Member's death, the minimum amount that will be distributed for each
distribution calendar year after the year of the Member's death is the quotient
obtained by dividing the Member's account balance by the Member's remaining life
expectancy calculated using the age of the Member in the year of death, reduced
by one for each subsequent year.
35
(e) If the Member dies before the date distributions begin and there is a
designated beneficiary, the minimum amount that will be distributed for each
distribution calendar year after the year of the Member's death is the quotient
obtained by dividing the Member's account balance by the remaining life
expectancy of the Member's designated beneficiary, determined as provided in
subsection (d). If the Member dies before the date distributions begin and there
is no designated beneficiary as of September 30 of the year following the year
of the Member's death, distribution of the Member's entire interest will be
completed by December 31 of the calendar year containing the fifth anniversary
of the Member's death. If the Member dies before the date distributions begin,
the Member's surviving spouse is the Member's sole designated beneficiary, and
the surviving spouse dies before distributions are required to begin to the
surviving spouse under subsection (a)(1), this Section will apply as if the
surviving spouse were the Member.
(f) The following definitions shall apply for purposes of this Section:
(1) Designated beneficiary shall mean the individual who is
designated as the beneficiary under the terms of the Plan and is the
designated beneficiary under Code Section 401(a)(9) and section
1.401(a)(9)-1, Q&A-4 of the Treasury regulations.
(2) A distribution calendar year is a calendar year for which a
minimum distribution is required. For distributions beginning before the
Member's death, the first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the Member's
Required Beginning Date. For distributions beginning after the Member's
death, the first distribution calendar year is the calendar year in which
distributions are required to begin under subsection (a). The required
minimum distribution for the Member's first distribution calendar year
will be made on or before the Member's Required Beginning Date. The
required minimum distribution for other distribution calendar years,
including the required minimum distribution for the distribution calendar
year in which the Member's Required Beginning Date occurs, will be made on
or before December 31 of that distribution calendar year.
(3) Life expectancy means an individual's life expectancy as
computed by use of the Single Life Table in section 1.401(a)(9)-9 of the
Treasury regulations.
(4) The Member's account balance is the account balance as of the
last valuation date in the calendar year immediately preceding the
distribution calendar year (valuation calendar year) increased by the
amount of any contributions made and allocated or forfeitures allocated to
the account balance as of dates in the valuation calendar year after the
valuation date and decreased by distributions made in the valuation
calendar year after the valuation date. The account balance for the
valuation calendar year includes any amounts rolled over or transferred to
36
the Plan either in the valuation calendar year or in the distribution
calendar year if distributed or transferred in the valuation calendar
year.
(5) Required Beginning Date means the first day of April following
the calendar year in which the Member attains age 70-1/2 or, if later, the
calendar year in which the Member retires. In the case of a Member who is
a "five percent owner" as defined in Section 21.07(f)(3), Required
Beginning Date means the first day of April following the calendar year in
which the Member attains age 70-1/2.
10.06 COMMENCEMENT OF BENEFIT DISTRIBUTION TO BENEFICIARY. Distributions
to the Beneficiary entitled under Section 9.02 to receive any payments payable
under this Plan on account of a Member's death shall be made in a lump sum
payment not later than December 31 of the calendar year following the calendar
year in which the Member died.
10.07 COMMENCEMENT OF BENEFIT DISTRIBUTION TO ALTERNATE PAYEE.
Distributions to an alternate payee entitled under Section 16.01 to receive any
payments payable under this Plan pursuant to the terms of a Qualified Domestic
Relations Order shall be made in accordance with the terms of such Qualified
Domestic Relations Order and this Plan on or after the date on which the Member
has attained his "earliest retirement age" (as defined under Code Section
414(p)) under the Plan. Notwithstanding the foregoing, distribution to an
alternate payee may be made prior to the Member's attainment of his earliest
retirement age if, but only if: (1) the Qualified Domestic Relations Order
specifies distribution at that time or permits an agreement between the Plan and
the alternate payee to authorize an earlier distribution; (2) the distribution
is a single sum distribution of the alternate payee's entire benefit entitlement
under the Plan; and (3) in the event the present value of the alternate payee's
benefits under the Plan exceeds $1,000, the alternate payee consents to any
distribution occurring prior to the Member's attainment of earliest retirement
age.
Nothing in this Section 10.07 shall be construed to permit a Member to (1)
receive a distribution at a time not otherwise permitted under the Plan, (2)
permit the alternate payee to receive a form of payment not otherwise permitted
under the Plan, or (3) cause his Plan accounts to be valued or otherwise
determined in a manner not otherwise permitted under the Plan.
37
SECTION 11
PERMITTED ROLLOVER OF PLAN DISTRIBUTIONS
11.01 ROLLOVER TO OTHER PLANS. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and pursuant to procedures
prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. Such distribution may commence no less than
thirty (30) days nor more than ninety (90) after any notice required under
Treas. Reg. Section 1.411(a)-11(c) (or its successor) and explanation of his
right to rollover his distribution and tax explanation in accordance with
Internal Revenue Rules are given to a Member or other distributee, provided that
the Member has been clearly informed that he has a right to a period of at least
thirty (30) days after receiving said notice to consider the decision as to
whether to elect a distribution or, if applicable, a distribution option, and
the Member nevertheless affirmatively elects distribution preceding the
expiration of thirty (30) days. A portion of the distribution shall not fail to
be an eligible rollover distribution merely because the portion consists of
after-tax Member contributions which are not includible in gross income.
However, such portion may be transferred only to an individual retirement
account or annuity described in Sections 408(a) or (b) of the Code, or a
qualified defined contribution plan described in Sections 401(a) or 403(a) of
the Code that agrees to separately account for amounts so transferred, including
separately accounting for the portion of such distribution which is includible
in gross income and the portion of such distribution which is not so includible.
11.02 ROLLOVER FROM OTHER PLANS. An Associate eligible to participate in
the Plan, regardless of whether he has satisfied the participation requirements
of Section 2.01, may transfer to the Plan an Eligible Rollover Distribution
provided that such distribution is from an Eligible Retirement Plan other than
an individual retirement account described in Code Section 408(a) or an
individual retirement annuity described in Code Section 408(b); and, provided
further, that this Plan shall not accept the portion of any eligible rollover
distribution that is not includible in gross income. If such transfer is not a
direct transfer, such a transfer may be made only if the following conditions
are met:
(a) the transfer occurs on or before the 60th day following the
Associate's receipt of the distribution from the Eligible Retirement
Plan; and
(b) The amount transferred is equal to any portion of the
distribution the Associate received from the Eligible Retirement
Plan, not in excess of the fair market value of all property
received in such a distribution reduced by employee contributions,
as defined in Code Section 402(a)(5)(E).
The Committee shall develop such procedures, and may require such
information, from a Member desiring to make such a transfer, as it
deems necessary or desirable to determine that the proposed transfer
will meet the requirements of the Section.
38
Upon approval by the Committee or its Administrative Delegate, the
amount transferred shall be deposited in the Trust Fund and shall be
credited to the Member's account. Such rollover amount shall be one
hundred percent (100%) vested in the Member, shall share in the
income allocations in accordance with Section 5, but shall not share
in the Company Profit Sharing Contributions, the Company Matching
Contributions or the forfeiture allocations. Upon termination of
employment, the total amount of the rollover contribution shall be
distributed in accordance with the terms of the Plan.
Upon such a transfer by an Associate who is otherwise eligible to
participate in the Plan but who has not yet completed the
participation requirement of Section 2.01, his rollover amount shall
represent his sole interest in the Plan until he becomes a Member.
11.03 DEFINITIONS. The following definitions shall apply for the
purposes of this Section 11:
(a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's beneficiary or for a specified
period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9) and any
hardship distribution.
(b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an
individual retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), an annuity contract
described in Code Section 403(b), an eligible plan described in Code
Section 457(b) maintained by a state, a political subdivision of a
state, or any instrumentality of a state or political subdivision of
a state, or a qualified trust described in Code Section 401(a),
which accepts or will make, as applicable, an Eligible Rollover
Distribution. This definition shall also apply to an Eligible
Rollover Distribution to a Member's surviving spouse, or a former
spouse who is an alternate payee under a Qualified Domestic
Relations Order.
(c) DISTRIBUTEE. A distributee includes a Member or former Member.
In addition, the Member or former Member's surviving spouse and the
Member's or former Member's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as
defined in Code Section 414(p), are distributees with regard to the
interest of the spouse or former spouse.
39
(d) DIRECT TRANSFER. A direct transfer is a payment by the Plan to
the eligible retirement plan specified by the distributee as
described in Code Section 401(a)(31).
40
SECTION 12
LOANS
12.01 AVAILABILITY OF LOANS. Loans shall be permitted under this Plan as
established by the policy of the Committee. Any such loan shall be subject to
such conditions and limitations as the Committee deems necessary for
administrative convenience and to preserve the tax-qualified status of the Plan.
Loans are available to Associates who have a Member Rollover Contribution
Account.
12.02 AMOUNT OF LOANS. No loan to any Associate, Member or Beneficiary may
be made to the extent that such loan, when added to the outstanding balance of
all other loans to the Associate, Member or Beneficiary, would exceed the lesser
of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance
of loans during the one-year period ending on the day before the loan is made,
over the outstanding balance of loans from the Plan on the date the loan is
made, or (b) one-half the present value of the nonforfeitable accrued benefit of
the Participant. For the purpose of the above limitation, all loans from all
plans of the Employer and other members of a group of employers described in
Code Sections 414(b), 414(c), 414(m) and 414(o) are aggregated. Furthermore, any
loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond four and one-half years from the date of the loan. If such
loan is used to acquire a dwelling unit which within a reasonable time
(determined at the time the loan is made) will be used as the principal
residence of the Participant, the repayment period shall not extend beyond
twenty nine and one-half years from the date of the loan. An assignment or
pledge of any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased under the
Plan will be treated as a loan under this paragraph.
12.03 TERMS OF LOANS.
(a) Loans shall be made available to all Associates, Members and
Beneficiaries on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated Employees (as
defined in Code Section 414(q)) in an amount greater than the amount made
available to other Employees.
(c) Loans must be adequately secured using not more than fifty percent
(50%) of the Member's Vested Account balance, and bear a reasonable
interest rate as determined from time to time by the Committee.
(d) An Associate or Member loan for less than $1,000 is not permitted;
provided, however, that if such Associate or Member also receives a loan
from the Puerto Rico Plan, such minimum amount limitation shall not apply.
41
(e) In the event of a default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs under the Plan
with respect to the Member.
(f) No loans will be made to any Associate or Member who on any day during
the Company's applicable fiscal year is a beneficial owner of more than
five percent (5%) of the outstanding stock of the Company.
(g) All loans shall be made pursuant to a written Member loan program
incorporated herein by reference.
(h) Loans are available from the following accounts, and will be withdrawn
from the Members accounts in the following hierarchy:
(a) Member Accounts
(b) Vested Company Accounts
(c) Member Rollover Contribution Accounts
(i) Loans will be taken and repaid from and to the Investment Funds on a
pro rata basis, except in the case the Member is subject to Section 16 of
the Securities Exchange Act of 1934 or has been designated as a
"Designated Insider," in which case such Member's loan will be taken first
from such Member's Investment Funds other than the Payless Common Stock
Fund.
42
SECTION 13
LIMIT ON CONTRIBUTIONS TO THE PLAN
This Section 13 is intended to conform the Plan to the requirements of
Code Section 415 and limits the contributions that can be made by and for an
individual under the Plan.
13.01 LIMIT ON CONTRIBUTIONS. Notwithstanding any provision of the Plan to
the contrary:
(a) The amounts allocated to a Participant during the Limitation Year
under the Plan and allocated to the Participant under any other defined
contribution plan to which the Employer or any other member of the Group
has contributed shall be proportionately reduced, to the extent necessary,
so that the Annual Addition does not exceed the least of:
(1) $40,000; or
(2) 100% of the Participant's remuneration from the Employer or any
member of the Group during the Limitation Year; or
(3) such other limits set forth in Code Section 415.
The amount set forth in subparagraph (1) above shall automatically be adjusted
to reflect adjustments made by applicable law. Remuneration for purposes of this
Section means remuneration as defined in Treasury Regulation Section
1.415-2(d)(10) and, effective January 1, 1998, shall also include the deferrals
described in Code Section 415(c)(3)(D)(including effective January 1, 2001,
elective amounts not included in gross income by reason of Code Section
132(f)(4)).
(b) For purposes of this Section, Limitation Year means the 12 month
period commencing on January 1 and ending on December 31.
(c) For purposes of this Section, Annual Additions means the sum for the
Limitation Year of Employer contributions, Employee contributions
(determined without regard to any rollover contributions as defined in
Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3), without
regard to catch-up contributions under Code Section 414(v) and without
regard to Employee contributions to a simplified employee pension plan
which are excludible from gross income under 408(k)(6) of the Code) and
forfeitures.
13.02 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.
(a) If, as a result of the allocation of forfeitures, a reasonable error
in estimating a Member's Pay or other facts and circumstances to which
Treasury Regulation Section 1.415-6(b)(6) shall be applicable, the "annual
additions" under this Plan would cause the
43
maximum "annual additions" to be exceeded for any Member, the Committee
shall (1) return any Member Contributions credited for the "limitation
year" to the extent that the return would reduce the "excess amount" in
the Member's Accounts, (2) hold any "excess amount" remaining after the
return of any member Contributions in a "Section 415 suspense account",
(3) use the "Section 415 suspense account" in the next "limitation year"
(and succeeding "limitation years" if necessary) to reduce either Company
Contributions for that Member if that Member is covered by the Plan as of
the end of the "limitation year" or if such Member is not covered by the
Plan at the end of the "limitation year" to reduce Company Contributions
for all Members in the Plan, before any Company Contributions or Member
Contributions which would constitute "annual additions" are made to the
Plan for such "limitation year," (4) reduce Company Contributions for such
"limitation year" by the amount of the "Section 415 suspense account"
allocated and reallocated during such "limitation year." For purposes of
(3) above, the Plan may not distribute "excess amounts" to Members or
former Members.
(b) For purposes of this Section, "EXCESS AMOUNT" for any Member for a
"limitation year" shall mean the excess, if any, of (1) the "annual
additions" which would be credited to his account under the terms of the
Plan without regard to the limitations of Code Section 415 over (2) the
maximum "annual additions" determined pursuant to Section 13.01(a).
(c) For purposes of this Section, "SECTION 415 SUSPENSE ACCOUNT" shall
mean an unallocated account equal to the sum of "excess amount" for all
Members in the Plan during the "limitation year." The "Section 415
suspense account" shall not share in any earnings or losses of the Trust
Fund.
44
SECTION 14
ADMINISTRATION OF THE PLAN
14.01 PLAN ADMINISTRATOR. The Company shall be the Plan Administrator of
the Plan for purposes of ERISA and shall be a "named fiduciary" as determined in
ERISA Section 402(a)(2).
14.02 DELEGATION OF AUTHORITY.
(a) Authority to administer the Plan has been delegated to the Committee
and the Administrative Subcommittee, if any, in accordance with Sections 1.42
(Total and Permanent Disability), 4.01 (Member Contributions), 6.01 (Member
Accounts), 6.02 (Company Accounts), 6.05 (Member Statements), 8.02 (Authorized
Withdrawals), 13.02 (Adjustment for Excessive Annual Additions), 20.02
(Withdrawal of an Employer) and this Section 14.
(b) Authority with respect to the Investment Funds of the Plan has been
delegated to the Trustee in accordance with Sections 7.01 (Administrative
Expenses), 5.01(c) (Investment Funds), 15 (Management of the Trust Fund) and
6.06 (shares of Payless ShoeSource, Inc. (Payless Stock) in the Payless Common
Stock Fund).
(c) Authority to direct the investment of the Plan's funds has been
delegated to the Investment Subcommittee, if any, in accordance with Section
15.03(b), (c) and (d) (Investments and Reinvestments).
(d) The Committee shall also have the authority and discretion to engage
an Administrative Delegate who shall perform, without discretionary authority or
control, administrative functions within the frame work of policies,
interpretations, rules practices and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Member to the Committee in accordance with the claims
review procedure in Section 16.05. Any decisions which call for interpretations
of the Plan provisions not previously made by the Committee shall be made only
by the Committee. The Administrative Delegate shall not be considered a
fiduciary with respect to the services it provides.
14.03 COMMITTEE AND SUBCOMMITTEES.
(a) The Committee may appoint two subcommittees (an "Administrative
Subcommittee" and an "Investment Subcommittee"), each Subcommittee to consist of
at least three persons, who need not be members of the Board. The Committee and
each Subcommittee, if appointed, shall elect from its members a Chairman and a
Secretary, and may appoint one or more Assistant Secretaries who may, but need
not be, members of the Committee or such Subcommittee, and may employ such
agents, such legal counsel and such clerical, medical,
45
accounting, actuarial and other services as it may from time to time deem
advisable to assist in the administration of the Plan. The Committee and each
Subcommittee may, from time to time, appoint agents and delegate to such agents
such duties as it considers appropriate and to the extent that such duties have
been so delegated, the agent shall be exclusively responsible for the proper
discharge of such duties.
(b) The Administrative Subcommittee shall have the general responsibility
for the administration of the Plan and the carrying out of its provisions, and
shall have general powers with respect to Plan administration, including, but
not limited to, the powers listed in this Section 14.03. The Administrative
Subcommittee shall have the discretionary authority to interpret and construe
the Plan, the power to establish rules for the administration of the Plan and
the transaction of its business, the power to remedy and resolve inconsistencies
and omissions, and the power to determine all questions which arise in the
administration, interpretation, or application of the Plan, including but not
limited to questions regarding the eligibility, status, Account value and any
rights of any Member, Beneficiary, and any other person hereunder.
(c) The Investment Subcommittee shall have the powers provided for in
Section 15.03(b).
(d) The Committee and each Subcommittee shall act by a majority of its
members and the action of such majority expressed by a vote at a meeting, or in
writing without a meeting, shall constitute the action of the Committee or such
Subcommittee. All decisions, determinations, actions or interpretations with
respect to the Plan by the Committee or either Subcommittee and the individual
committee or subcommittee members shall be in the Committee's, Subcommittee's or
individual member's sole discretion. The decision, determination, action or
interpretation of the Committee or either Subcommittee and the respective
individual members of the Committee or Subcommittee in respect to all matters
within the scope of its authority shall be conclusive and binding on all
persons. No member of the Committee or either Subcommittee shall have any
liability to any person for any action or omission except each for his own
individual willful misconduct. If a Subcommittee is not appointed, the Committee
shall exercise such Subcommittee's authority and perform its duties as described
herein.
(e) Nothing in this Section 14 or in any other provision of the Plan shall
be deemed to relieve any person who is a fiduciary under the Plan for purposes
of ERISA from any responsibility or liability for any responsibility, obligation
or duty which Part 4 of Title I of ERISA shall impose upon such person with
respect to this Plan.
14.04 ACCOUNTS AND REPORTS. The Committee shall maintain or cause to be
maintained accounts reflecting the fiscal transactions of the Plan and shall
keep in convenient form such data as may be necessary for the administration of
the Plan. The Committee shall prepare annually a report showing in reasonable
detail the assets and liabilities of the Plan and setting forth a brief account
of the operation of the Plan for the preceding year.
46
14.05 NON-DISCRIMINATION. Neither the Committee nor either Subcommittee
shall exercise its discretion in such a way as to result in discrimination in
favor of officers, shareholders or highly compensated employees (within the
meaning of Code Section 414(q)).
47
SECTION 15
MANAGEMENT OF THE TRUST FUND
15.01 USE OF THE TRUST FUND. All assets of the Plan shall be held as a
Trust Fund in one or more trusts and shall be used to provide the benefits of
this Plan. No part of the corpus or income shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and their Beneficiaries
under this Plan and administrative expenses of this Plan.
15.02 TRUSTEES. The Trust Fund may, at the direction of the Company, be
divided into one or more separate trusts, each of which may have a separate
Trustee appointed from time to time by the Company and subject to removal by the
Company. The Trustee or Trustees of each trust shall have complete authority and
discretion with respect to the investment and reinvestment of the assets of each
trust, subject, however, to (i) the provisions in the Trust Agreements between
the Trustee or Trustees and the Company, and (ii) the provisions of this Plan.
Any or all of such separate trusts shall be referred to collectively from time
to time as the Trust Fund. Any division of the Trust Fund into one or more
separate trusts shall be at the direction of the Company.
15.03 INVESTMENTS AND REINVESTMENTS. The investment and reinvestment of
the assets of the Trust Fund shall be in accordance with the following:
(a) The Company shall have the authority to instruct the Trustee or
Trustees to accept and follow the instructions of any designated investment
manager (within the meaning of ERISA Section 3(38)) with respect to the
investment and reinvestment of the assets constituting a money market or stable
value fund, a fixed income fund, a common stock fund, or any other Investment
Funds the Company may designate.
(b) The Investment Subcommittee shall have the powers, with respect to
investment and reinvestment of the assets constituting the Investment Funds, to
promulgate limitations, restrictions, rules or guidelines with respect to the
investment policies and classes of investments in which the assets of the
Investment Funds may be invested or reinvested by the Trustee or Trustees,
including any such investments made pursuant to the instructions of any
investment manager. In the event an investment manager designated pursuant to
Section 15.03(a) resigns or otherwise is unable to act, the Investment
Subcommittee shall have such power and authority as otherwise would be
exercisable by such Investment Manager.
(c) In the event that the assets of the Trust Fund shall be divided into
one or more separate trusts pursuant to the authority provided for in Section
15.02, then the powers of the Investment Subcommittee as provided for in Section
15.03(b) may be exercised with respect to one or more of such trusts within the
discretion of the Investment Subcommittee.
(d) The powers of the Investment Subcommittee as provided in Section
15.03(b) may be exercised at any time or from time to time by the Investment
Subcommittee within the discretion of the Investment Subcommittee and shall be
pursuant to a written agreement between
48
the Investment Subcommittee and the Trustee or Trustees or, if an investment
manager has been appointed, between the Investment Subcommittee and the
investment manager.
(e) The Trust Agreement between the Company and the Trustee or Trustees
implementing the Plan shall contain provisions effectuating the provisions of
this Section 15 of the Plan.
49
SECTION 16
CERTAIN RIGHTS AND OBLIGATIONS OF EMPLOYERS AND MEMBERS
16.01 DISCLAIMER OF EMPLOYER LIABILITY.
(a) No liability shall attach to any Employer with respect to a benefit or
claim hereunder and Members and their Beneficiaries, and all persons claiming
under or through them, shall have recourse only to the Trust Fund for payment of
any benefit hereunder.
(b) The rights of the Members, their Beneficiaries and other persons are
hereby expressly limited and shall be only in accordance with the provisions of
the Plan. Nothing contained herein shall be deemed to give a Member any interest
in any specific property of the Trust or any interest other than a right to
receive payments pursuant to the provisions of the Plan.
16.02 EMPLOYER-ASSOCIATE RELATIONSHIP. Neither the establishment of this
Plan nor its communication through a Summary Plan Description (or otherwise)
shall be construed as conferring any legal or other rights upon any Associate or
any other person to continue in employment or as interfering with or affecting
in any manner the right of an Employer to discharge any Associate or otherwise
act with relation to him. Each Employer may take any action (including
discharge) with respect to any Associate or other person and may treat him
without regard to the effect which such action or treatment might have upon him
as a Member of this Plan.
16.03 BINDING EFFECT. Each Member, by executing an enrollment form,
beneficiary designation and otherwise agreeing to participate in the Plan agrees
for himself, his beneficiary(ies), heirs, successors and assigns to be bound by
all of the provisions of the Plan.
16.04 CORPORATE ACTION. With respect to any action permitted or required
by the Plan, the Company may act through its appropriate officers.
16.05 CLAIM AND APPEAL PROCEDURE. A Member or beneficiary may file with
the Committee or its designee at any time a written claim in connection either
with a benefit payable hereunder or otherwise. The Committee or its designee,
normally within 90 days after receipt of a written claim, shall render a written
decision on the claim, unless an additional 90 days is required by special
circumstances which shall be explained to the claimant. If the claim is denied,
either in whole or in part, the decision shall include the reason or reasons for
the denial; a specific reference to the Plan provision or provisions which are
the basis for the denial; a description of any additional material or
information necessary for the claimant to perfect the claim; an explanation as
to why the information or material is necessary; and an explanation of the
Plan's entire claim procedure. The claimant may file with the Committee, within
60 days after receiving the written decision from the Committee, a written
notice of request for review of the Committee's decision. The review shall be
made by a committee of up to three individuals (which may include members of the
Committee) appointed by the Company or by the Committee. Said committee
50
shall render a written decision on the claim containing the specific reasons for
their decision, including a reference to the Plan's provisions, normally within
60 days after receipt of the request for review, unless an additional 60 days is
required by special circumstances which shall be explained to the claimant. If a
Member or beneficiary does not file written notice of a claim with the Committee
or its designee at the times set forth above, he shall have waived any right to
a benefit other than as originally proposed by the Company or the Committee.
51
SECTION 17
NON-ALIENATION OF BENEFITS
17.01 PROVISIONS WITH RESPECT TO ASSIGNMENT AND LEVY. No benefit payable
under this Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, levy or charge, and any attempt
so to anticipate, alienate, sell, transfer, assign, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit, except as specifically provided herein.
Notwithstanding the foregoing, the creation, assignment, or recognition of a
right to any benefit payable to an alternate payee with respect to a Qualified
Domestic Relations Order shall not be treated as an assignment or alienation
prohibited by this Section. Any other provision of the Plan to the contrary
notwithstanding, if a Qualified Domestic Relations order requires the
distribution of all or part of a Member's benefits under the Plan, the
establishment or acknowledgment of the alternate payee's right to benefits under
the Plan in accordance with the terms of such Qualified Domestic Relations Order
shall in all events be deemed to be consistent with the terms of the Plan.
Notwithstanding the above a Member's benefit will be offset against any
amount he or she is ordered or required to pay to the Plan pursuant to an order
or requirement which arises under a judgment of conviction for a crime involving
the Plan, under a civil judgment entered by a court in an action involving a
fiduciary breach, or pursuant to a settlement agreement between the Participant
and the Department of Labor or the Pension Benefit Guaranty Corporation. Any
such offset shall be made pursuant to Section 206(d) of ERISA.
17.02 ALTERNATE APPLICATION. If a Member or Beneficiary under this Plan
becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit under this Plan, except as specifically
provided herein, or if any benefit shall, in the discretion of the Committee,
cease, and in that event the Committee may hold or apply the same or any part
thereof to or for the benefit of such Member or Beneficiary, his spouse,
children or other dependents, or any of them, or in such other manner and in
such proportion as the Committee may deem proper.
52
SECTION 18
AMENDMENTS
18.01 COMPANY'S RIGHTS. The Company reserves the right at any time and
from time to time in its sole discretion to alter, amend, or modify, in whole or
in part, any or all of the provisions of this Plan, provided, however, no such
alteration, amendment or modification shall be made which shall decrease the
accrued benefit of any Member. Anything in this Plan to the contrary
notwithstanding, the Company in its sole discretion may make any modifications
or amendments, additions or deletions in or to this Plan as to benefits or
otherwise and retroactively if necessary, and regardless of the effect thereof
on the rights of any particular Member or Beneficiary, which it deems
appropriate and/or necessary in order to comply with or satisfy any conditions
of any law or regulation relating to the qualification of this Plan and the
trust or trusts created pursuant hereto and to keep this Plan and said trusts
qualified under Code Section 401(a) and to have the trust or trusts declared
exempt from taxation under Code Section 501(a).
18.02 PROCEDURE TO AMEND. This Plan may be amended by action of the
Company's Board of Directors and evidenced by a written amendment signed by the
Company's Secretary or by any other person so authorized by or pursuant to
authority of the Board of Directors.
18.03 PROVISION AGAINST DIVERSION. No part of the assets of the Trust Fund
shall, by reason of any modification or amendment or otherwise, be used for, or
diverted to, purposes other than for the exclusive benefit of Members and their
Beneficiaries under this Plan and administrative expenses of this Plan.
53
SECTION 19
TERMINATION
19.01 RIGHT TO TERMINATE. The Company reserves the right to terminate this
Plan, in whole or in part, at any time and, if this Plan shall be terminated
either in its entirety or with respect to any Employer included hereunder, the
provisions of Section 19.03 shall apply and the Accounts of affected Members
shall become (or remain) fully vested and nonforfeitable.
19.02 WITHDRAWAL OF AN EMPLOYER. If an Employer shall cease to be a
participating Employer in this Plan, the Trust Fund and the Accounts of the
Members of the withdrawing Employer and their Beneficiaries shall be revalued as
if such withdrawal date were a Valuation Date. The Committee shall then direct
the Trustee either to distribute the Accounts of the Members of the withdrawing
Employer as of the date of such withdrawal on the same basis as if the Plan had
been terminated pursuant to Section 19.03 or to deposit in a trust established
by the withdrawing Employer pursuant to a plan substantially similar to this
Plan assets equal in value to the assets of the Trust Fund allocable to the
Accounts of the Members of the withdrawing Employer.
19.03 DISTRIBUTION IN EVENT OF TERMINATION OF TRUST. If this Plan is
terminated at any time including a partial termination as defined in Code
Section 411(d)(3), or if contributions are completely discontinued and the
Company determines that the trust shall be terminated, in whole or in part, the
Trust Fund and all Accounts shall be revalued as if the termination date were a
Valuation Date and the affected Members' Accounts shall be distributed in
accordance with Section 10.
19.04 ADMINISTRATION IN EVENT OF CONTINUANCE OF TRUST. If this Plan shall
be terminated in whole or in part or contributions completely discontinued but
the Company determines that the trust shall be continued pursuant to the terms
of the Trust Agreement, the trust shall continue to be administered as though
the Plan were otherwise in effect. Upon the subsequent termination of the trust,
in whole or in part, the provisions of Section 19.03 shall apply.
19.05 MERGER, CONSOLIDATION OR TRANSFER. In the case of any merger or
consolidation with, or transfer of Plan assets or liabilities to, any other
plan, each Member shall be entitled to receive a benefit immediately after the
merger, consolidation or transfer (if the transferee plan then terminated) which
is equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
54
SECTION 20
CONSTRUCTION
20.01 APPLICABLE LAW. The provisions of this Plan except as otherwise
governed by ERISA shall be construed, regulated, administered and enforced
according to the laws of the State of Kansas and, whenever possible, to be in
conformity with the applicable requirements of ERISA and the Internal Revenue
Code.
20.02 GENDER AND NUMBER. Wherever applicable, the masculine pronoun as
used herein shall include the feminine pronoun and the singular pronoun shall
include the plural.
55
SECTION 21
TOP-HEAVY REQUIREMENTS
21.01 GENERALLY. For any Plan Year in which the Plan is a Top-Heavy Plan,
the provisions of Sections 21.02 and 21.03 shall automatically take effect in
accordance with Code Section 416.
21.02 MINIMUM ALLOCATIONS.
(a) Minimum Employer Allocations and allocations of Plan forfeitures for a
Member who is not a Key Employee shall be required under the Plan for the
Plan Year as set forth in Section 21.02 (b) and(c).
(b) The amount of the minimum allocation shall be the lesser of the
following, percentages of Pay: (i) four percent (4%) or, (ii) the highest
percentage at which such allocations are made under the Plan for the Plan
Year on behalf of a Key Employee. For purposes of this paragraph (b), all
defined contribution plans required to be included in an Aggregation Group
shall be treated as one plan. This paragraph (b) shall not apply if the
Plan is required to be included in an Aggregation Group and the Plan
enables a defined benefit plan required to be included in the Aggregation
Group to meet the requirement of Code Sections 401(a)(4) or 410. For
purposes of this paragraph (b), the calculation of the percentage at which
allocations are made for a Key Employee shall be based only on his Pay not
in excess of $200,000, such amount to be adjusted periodically for
increases in the cost of living in accordance with Code Section
401(a)(17). The minimum allocation described in this paragraph (b) shall
be in addition to (and shall not be reduced by) any Member Contributions
under Section 4 (whether Before-Tax or After-Tax) and any allocation of
forfeitures, if any, to which a Member may be entitled.
(c) For purposes of this Section 21.02, the term "Member" shall be deemed
to refer to all Members who have not separated from service at the end of
the Plan Year including, without limitation, individuals who declined to
make contributions to the Plan.
21.03 PARTICIPANTS UNDER DEFINED BENEFIT PLANS. If any Member other than a
Key Employee is also a participant under a defined benefit plan of an Employer
which is a Top-Heavy Plan, then Section 21.03(a) shall not apply and the
required minimum annual contribution for such Member under this Plan shall be 7
percent (7 %) of such Member's Pay. Such contribution shall be made without
regard to the amount of contribution, if any, made to the Plan on behalf of
Employees.
21.04 DETERMINATION OF TOP HEAVINESS.
(a) The determination of whether a plan is Top-Heavy shall be made in
accordance with paragraphs (b) through (d) of this Section 21.04.
56
(b) If the Plan is not required to be included in an Aggregated Group with
other plans, then it shall be Top-Heavy only if when considered by itself,
it is a Top-Heavy Plan and it is not included in a permissive Aggregation
Group that is not a Top-Heavy Group.
(c) If the Plan is required to be included in an Aggregation Group with
other plans, it shall be Top-Heavy only if the Aggregation Group,
including any permissively aggregated plans, is Top-Heavy.
(d) If a plan is not a Top-Heavy Plan and is not required to be included
in an Aggregation Group, then it shall not be Top-Heavy even if it is
permissively aggregated in an Aggregation Group which is a Top-Heavy
Group.
21.05 CALCULATION OF TOP-HEAVY RATIOS. A plan shall be Top-Heavy and an
Aggregation Group shall be a Top-Heavy Group with respect to any Plan Year as of
the Determination Date if the sum as of the Determination Date of the Cumulative
Accrued Benefits and the Cumulative Accounts of Employees who are Key Employees
for the Plan Year exceeds 60 percent (60%) of a similar sum determined for all
Employees, excluding former Key Employees.
21.06 CUMULATIVE ACCOUNTS AND CUMULATIVE ACCRUED BENEFITS.
(a) The Cumulative Accounts and Cumulative Accrued Benefits for any
Employee shall be determined in accordance with paragraphs (b) through (e)
of this Section 21.06.
(b) Cumulative Account shall mean the sum of the amount of an Employee's
accounts under a defined contribution plan (for an unaggregated plan) or
under all defined contribution plans included in an Aggregation Group (for
aggregated plans) determined as of the most recent plan Valuation Date
within a 12-month period ending on the Determination Date, increased by
any allocations due after such Valuation Date and before the Determination
Date.
(c) Cumulative Accrued Benefit means the sum of the present value of an
Employee's accrued benefits under a defined benefit plan (for an
unaggregated plan) or under all defined benefit plans included in an
Aggregation Group (for aggregated plans), determined under the actuarial
assumptions set forth in such plan or plans, as of the most recent plan
Valuation Date within a 12-month period ending on the Determination Date
as if the Employee voluntarily terminated service as of such Valuation
Date.
(d) Accounts and benefits shall be calculated to include all amounts
attributable to both Matching Allocations and Employee contributions but
excluding amounts attributable to voluntary deductible Employee
contributions.
(e) Accounts and benefits shall be increased by the aggregate
distributions during the one-year period ending on the Determination Date
made with respect to an Employee
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under the plan or plans as the case may be or under a terminated plan which, if
it had not been terminated, would have been required to be included in the
Aggregation Group. In the case of a distribution made for a reason other than
separation from service, death, or disability, this provision shall be applied
by substituting "five-year period" for "one-year period."
(f) Rollovers and direct plan-to-plan transfers shall be handled as follows:
(i) If the transfer is initiated by the Employee and made from a plan
maintained by one Employer to a plan maintained by another Employer, the
transferring plan continues to count the amount transferred under the
rules for counting distributions. The receiving plan does not count the
amount if accepted after December 31, 1983, but does count it if accepted
prior to December 31, 1983.
(ii) If the transfer is not initiated by the Employee or is made between
plans maintained by the Employers, the transferring plan shall no longer
count the amount transferred and the receiving plan shall count the amount
transferred.
(iii) For purposes of this subsection (f), all Employers aggregated under
the rules of Code Sections 414(b), (c) and (m) shall be considered a
single employer.
(g) The accrued benefits and accounts of any individual who has not performed
services for the Employer during the one-year period ending on the Determination
Date shall not be taken into account.
21.07 OTHER DEFINITIONS.
(a) Solely for purposes of this Section 21, the definitions in paragraphs (b)
through (i) of this Section 21.07 shall apply, to be interpreted in accordance
with the provisions of Code Section 416 and the regulations thereunder.
(b) Aggregation Group means a plan or group of plans which included all plans
maintained by the Employer in which a Key Employee is a participant or which
enables any plan in which a Key Employee is a participant to meet the
requirements of Code Section 401(a)(4) or Code Section 410, as well as all other
plans selected by the Company for permissive aggregation, the inclusion of which
would not prevent the group of plans from continuing to meet the requirements of
such Code sections.
(c) Determination Date means, with respect to any Plan Year, the last day of the
preceding Plan Year.
(d) Employee means any person employed by an Employer and shall also include any
Beneficiary of such persons, provided that the requirements of Sections 21.02
and 21.03 shall not apply to any person included in a unit of Employees covered
by an agreement
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which the Secretary of Labor finds to be a collective bargaining agreement
between Employee representatives and one or more Employers if there is evidence
that retirement benefits were the subject of good faith bargaining between such
Employee representatives and such Employer or Employers.
(e) Employer means any corporation which is a member of a controlled group of
corporations (as defined in Code Section 414(b)) which includes the Company or
any trades or businesses (whether or not incorporated) which are under common
control (as defined in Code Section 414(c)) with the Company, or a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Company,
(f) Key Employee means any Employee or former Employee (including any deceased
Employee) who is, at any time during the Plan Year which includes the
Determination Date, any one or more of the following: (1) an officer of an
Employer who has annual Pay of more $130,000 (as adjusted under Code Section
416(i)(1))(2) any person owning (or considered as owning within the meaning of
the Code Section 318) more than five percent of the outstanding stock of an
Employer or stock possessing more than five percent of the total combined voting
power of such stock; (3) a person who would be described in subsection (2) above
if "one percent" were substituted for "five percent" each place it appears in
subsection (2) above, and who has annual Pay of more than $150,000 (for purposes
of determining ownership under this subsection, Code Section 318(a)(2)(C) shall
be applied by substituting "five percent" for "50 percent" and the rules of
subsections (b), (c) and (m) of Code Section 414 shall not apply).
IN WITNESS WHEREOF, the Company has caused this amended Plan to be
executed by a duly authorized officer effective November 10, 2005.
PAYLESS SHOESOURCE, INC.
By: /s/ Jay A. Lentz
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